Ingersoll Rand Earnings: Industrial Technologies and Services Segment Maintains Strong Momentum

We’ve raised our fair value estimate for narrow-moat-rated Ingersoll Rand IR to $67 from $65 after the company reported solid second-quarter results, with double-digit year-over-year growth in organic revenue and adjusted EBITDA, and raised its full-year outlook for the second time this year. The fair value adjustment reflects our higher near-term revenue growth projections as well as the time value of money.

Ingersoll Rand increased its second-quarter organic revenue by 12% from the prior-year period, including 14.4% growth in industrial technologies and services and 4.6% growth in precision and science technologies. The company delivered a 190-basis-point year-over-year adjusted EBITDA margin expansion, from 23.3% to 25.2%, and both segments posted a positive price/cost spread.

Management raised its guidance for full-year 2023 and now expects organic revenue growth of 8%-10% (up from 6%-8%), adjusted EBITDA of $1.69 billion-$1.74 billion (up from $1.66 billion-$1.71 billion), and adjusted EPS of $2.70-$2.80 (up from $2.64-$2.74). The revised outlook bakes in an additional 300 basis points of organic revenue growth in the industrial technologies and services segment, which saw an 8% year-over-year increase in orders in the second quarter. Ingersoll Rand grew its backlog by 12% from the prior-year period.

During the quarter, the company announced the acquisition of Howden Roots for $300 million. The acquisition, which is expected to close in the third quarter, will add around $115 million in annualized revenue and bolster Ingersoll Rand’s low-pressure compression and vacuum capabilities. With roughly $3.2 billion in available liquidity, we believe that Ingersoll Rand is well positioned to continue compounding earnings and deploying capital into acquisitions.