How High Can Ingersoll-Rand Fly?
Shares of Ingersoll-Rand (NYS: IR) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.
How it got here
Shares of Ingersoll-Rand have been recovering for the last year from a major drop and have finally reached a new peak. Operations are performing well with revenue rising slightly in the second quarter (excluding Hussmann) to $3.8 billion and adjusted earnings per share rising to $1.15 from $0.92 a year ago. But the stock's rise has been more about beating expectations than beating the company's previous results. The company has beaten earnings estimates by an average of 22% in the last three quarters, and shares have responded over that time.
While the stock has done well over the last nine months, Ingersoll-Rand hasn't been a great performer over the past five years. In fact, it hasn't performed well at all. The stock is down 4.1% compared to industrial equipment makers Caterpillar (NYS: CAT) , Deere & Company (NYS: DE) , and United Technologies (NYS: UTX) , who have all risen over that time.
We can get a peak into the reason Ingersoll-Rand has underperformed long term below. The company isn't growing as quickly as Caterpillar or Deere and doesn't have a strong return on assets either.
Ingersoll-Rand | 2.0 | -6.6% | 4.8% | 12.8 |
Caterpillar | 3.6 | 22.1% | 6.7% | 8.5 |
Deere | 4.5 | 14.5% | n/a | 8.8 |
United Technologies | 3.2 | -4.6% | 7.6% | 12.4 |
Source: Yahoo! Finance.
But like I said, the expectations were low enough over the past year for the company to easily jump them, and that's why the stock has risen.
What's next?
So will Ingersoll-Rand continue to rise? If the economy continues to slowly improve, which I think it will, so with Ingersoll-Rand. But I think there are better ways to play the recovery.
Caterpillar and Deere have a better exposure to industrial market around the world and the U.S. agriculture market, where farmers will have strong profitability (if not yield). They're both also trading at lower forward P/E ratios and are growing quickly.
Before giving a ringing endorsement, I would like to see revenue growing faster and a better value in the stock in relation to peers. But our CAPS community disagrees and has given the stock a four-star rating (out of five). What do you think? Leave your thoughts in our comments section below.
Interested in reading more about Ingersoll-Rand? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.
The article How High Can Ingersoll-Rand Fly? originally appeared on Fool.com.
Fool contributorTravis Hoiumdoes not have a position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
