On Oct 8, we initiated our coverage on
) with a Neutral recommendation. The sideline view is based on
its balanced business model, while the stock remains vulnerable
to a gross margin pressure and uncertainties regarding its
Why Neutral Recommendation?
Ingersoll is one of the leading players in air conditioning
systems and services (Trane), transport refrigeration (Thermo
King), door hardware (Schlage) and industrial technologies (Club
Car) markets. The company continues to focus on improving the
efficiencies and capabilities of products and services as it
remains optimistic about the U.S. residential new construction
We remain bullish about the company's position going ahead and
expect it to achieve steady improvements in operating
profitability with its strong commitments to consistently invest
in new products and technologies.
Ingersoll continues to focus on its strategic priorities, which
include a disciplined capital allocation, strong and flexible
balance sheet position, and cash flows enhancement to support
dividend growth. The structural changes in the company are
further expected to unlock additional value. We believe that such
moves along with its robust operating platform and an efficient
management team will help in the execution of these strategic
priorities and drive net asset value and dividend growth in the
future as well.
Ingersoll has a solid foundation of global brands and commands a
leading market share in all major product lines. The geographic
and industry diversity coupled with a large installed product
base provides ample growth opportunities within service, spare
parts and replacement revenue streams. Additionally, the
company's complementary portfolio of products and services is
likely to assist Ingersoll in strengthening its market position
and achieving high productivity.
Causes for Concern
On the flip side, uncertainties related to the upcoming spin-off
of the security business, capital deployment and the $2 billion
share repurchase program are deterrents in the short term. The
costs related to the proposed spin-off of the security businesses
are expected to be in the range of 50 cents to 60 cents per share
in fiscal 2013 and additional costs from the early retirement of
debt is expected to reduce EPS by 15 cents per share.
In addition, Ingersoll operates in a competitive market place,
due to which it has to continually invest in R&D initiatives
to stay ahead of competition, thereby increasing its operating
costs. Consequently, the company is continually under stress to
maintain profitability through stringent cost-cutting measures.
Other Stocks That Warrant a Look
Ingersoll currently carries a Zacks Rank #2 (Buy). Other stocks
that are worth a look in the industry include
The Middleby Corp.
), each carrying a Zacks Rank #2 (Buy).
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