Machinery Stocks

Ingersoll-Rand PLC Valuation – February 2018 $IR

Company Profile (obtained from Marketwatch): Ingersoll-Rand Plc engages in the development, manufacture and trade of air and ventilation systems. It operates through two segments: Climate and Industrial. The Climate segment provides products for heating, ventilation, and air conditioning systems. The Industrial segment offers compressed air an gas systems, power tools, material handling systems, and fluid management equipment. It distributes its products under the following brand names: Ingersoll-Rand, Trane, Thermo King, American Standard, ARO, and Club Car. The company was founded in December 2001 and is headquartered in Swords, Ireland.

IR Chart

IR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IR – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $22,190,172,467 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 268.85% Pass
6. Moderate PEmg Ratio PEmg < 20 18.82 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.15 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.72
MG Growth Estimate 12.19%
MG Value $155.15
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $68.40
MG Value based on 0% Growth $40.10
Market Implied Growth Rate 5.16%
Current Price $88.80
% of Intrinsic Value 57.24%

Ingersoll-Rand PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.6 in 2014 to an estimated $4.72 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Ingersoll-Rand PLC revealed the company was trading above its Graham Number of $56.98. The company pays a dividend of $1.7 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 18.82, which was below the industry average of 24.17, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.4.

Ingersoll-Rand PLC receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.40
Graham Number $56.98
PEmg 18.82
Current Ratio 1.27
PB Ratio 3.15
Current Dividend $1.70
Dividend Yield 1.91%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $6,119,100,000
Total Current Liabilities $4,828,000,000
Long-Term Debt $2,957,000,000
Total Assets $18,173,300,000
Intangible Assets $9,678,600,000
Total Liabilities $11,033,000,000
Shares Outstanding (Diluted Average) 253,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.05
Dec2017 $5.05
Dec2016 $5.65
Dec2015 $2.48
Dec2014 $3.40
Dec2013 $2.07
Dec2012 $3.28
Dec2011 $1.01
Dec2010 $1.89
Dec2009 $1.37
Dec2008 -$8.73
Dec2007 $13.43
Dec2006 $3.20
Dec2005 $3.09
Dec2004 $3.47
Dec2003 $1.87
Dec2002 -$0.52
Dec2001 $0.74
Dec2000 $2.06
Dec1999 $1.38
Dec1998 $1.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.72
Dec2017 $4.28
Dec2016 $3.72
Dec2015 $2.65
Dec2014 $2.60
Dec2013 $2.11
Dec2012 $1.34
Dec2011 $0.85
Dec2010 $1.25
Dec2009 $1.45
Dec2008 $1.95
Dec2007 $6.54
Dec2006 $2.80
Dec2005 $2.31
Dec2004 $1.79
Dec2003 $1.00
Dec2002 $0.72

Recommended Reading:

Other ModernGraham posts about the company

34 Companies in the Spotlight This Week – 2/7/15
Ingersoll-Rand Inc. Annual Valuation – 2015 $IR
14 Companies in the Spotlight This Week – 1/18/14
Ingersoll-Rand PLC (IR) Annual Valuation

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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