Ingersoll Rand Checking All Of The Street's Preferred Thematic Boxes

Investors love a good story, and Ingersoll Rand (IR) is certainly obliging them, as this company checks almost all of the Street's preferred thematic boxes right now. Ingersoll Rand is strongly leveraged to the short-cycle industrial recovery, passed through the downturn with excellent decremental margins, offers outsized synergy opportunities, has M&A optionality, and offers a market share growth/leverage story, as pre-break up Ingersoll Rand didn't invest as much into its industrial businesses. Frankly, all that the story lacks is leverage to industrial software, HVAC/green retrofit, or life sciences/bioproduction, and even on the latter point, there is leverage to medical/scientific fluidics.

I thought Ingersoll Rand already had a pretty healthy valuation in August, but I grossly underestimated how much more the Street would pay for the company's leverage to the post-pandemic recovery and that thematic excellence. With that, the shares are up about 40% since my last article, roughly doubling the return of the larger industrial group and handily outperforming Atlas Copco (OTCPK:ATLKY) as well.

I still have issues with valuation, as mid-to-high single-digit revenue and FCF growth and over two points of operating margin improvement from 2021 to 2023 can't really get me to a good place on valuation. I don't discount the upside potential from more M&A moves, nor the opportunities to gain share or the value of a good story, but the drivers for further outperformance seem more limited to me.

 

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Ingersoll Rand Checking All Of The Street's Preferred Thematic Boxes