Ingersoll Rand Earnings: Strong Organic Revenue Growth Drives Full-Year Guidance Raise

Narrow-moat-rated Ingersoll Rand IR reported strong first-quarter results, featuring a 33% year-over-year increase in adjusted EPS, from $0.49 to $0.65. We’ve increased our fair value estimate to $65 from $63, which reflects our slightly more optimistic revenue growth projections and time value of money. We see the name as modestly undervalued, with shares currently trading in 4-star territory.

Compared with the same period last year, Ingersoll Rand’s first-quarter organic revenue was up 20%, driven by 24.5% growth in industrial technologies and services and 6% growth in precision and science technologies. We were pleased to see Ingersoll Rand expand its first-quarter adjusted EBITDA margin by 190 basis points year over year, from 22.7% to 24.6%. After a strong start to the year, management raised its guidance for full-year 2023 and now anticipates full-year organic revenue growth of 6%-8% (up from 3%-5%), adjusted EBITDA of $1,660 million-$1,710 million (up from $1,570 million-$1,630 million), and adjusted EPS of $2.64-$2.74 (up from $2.48-$2.58).

Ingersoll Rand’s strong first-quarter results support our belief that the company is poised to continue compounding cash flows thanks to its solid mergers and acquisition execution and continued margin expansion. During the quarter, Ingersoll Rand completed the acquisition of SPX Flow for roughly $520 million and announced the acquisitions of Trace Analytics and Gaopeng Vacuum Equipment. Management reaffirmed its target of adding $200 million-$300 million in annualized inorganic revenue in 2023. We think that Ingersoll Rand has done an impressive job driving margin expansion at acquired companies. For example, since Ingersoll Rand acquired Seepex in August 2021, it has expanded the business’ adjusted EBITDA margins by over 1,000 basis points. Ingersoll Rand ended the quarter with liquidity of around $2.2 billion, which we believe puts it in a strong position to continue deploying capital into acquisitions.