Ingersoll Rand Earnings: Full-Year Outlook Raised After Strong Q3 Revenue Growth

We’ve raised our fair value estimate for narrow-moat-rated Ingersoll Rand IR to $69 from $67 after the company posted solid third-quarter results, featuring a 23% year-over-year increase in adjusted EBITDA. Management raised the full-year outlook for the third time this year and now anticipates organic revenue growth of 9%-11% (up from 8%-10%) and adjusted EBITDA of $1,730 million-$1,770 million (up from $1,690 million-$1,740 million). The fair value increase is driven by our slightly more optimistic near-term revenue growth projections as well as time value of money.

Ingersoll Rand’s third-quarter organic revenue increased by around 6% from the same period last year, driven by 9.5% growth in industrial technologies and services, partially offset by a 5.3% organic revenue decline in precision and science technologies due to headwinds in the life sciences business. Industrial technologies and services core products maintained strong momentum, with low-double-digit growth in compressors and high-teens growth in industrial vacuum and blowers. Ingersoll Rand improved its adjusted EBITDA margin by 170 basis points year over year, from 24.8% and 26.5%, with both segments contributing. We were encouraged that precision and science technologies managed to boost its adjusted EBITDA margin by 120 basis points despite lower volume leverage.

The company deployed $308 million into mergers and acquisitions in the third quarter, closing on the previously announced Howden Roots deal as well as two additional acquisitions of Oxywise and Fraserwoods. Ingersoll Rand has a strong balance sheet and over $3 billion in available liquidity, which we think positions it well to continue to actively pursue M&A. The company has now added roughly $190 million of annualized inorganic revenue thus far in 2023 and remains on track to reach its goal of adding $200 million-$300 million of annualized inorganic revenue by the end of the year.