BofA Upgrades Ingersoll-Rand, Says Premium Growth Appears Sustainable

The U.S. non-residential construction sector seems poised for continued growth through 2020. This is particularly true for the institutional segment, and Ingersoll-Rand PLC IR is more levered to institutional spending, according to Bank of America Merrill Lynch.

The Analyst

BofA’s Andrew Obin upgraded Ingersoll-Rand from Neutral to Buy and raised the price target from $105 to $130.

The Thesis

The U.S. non-residential construction cycle has room for growth through 2020 as the macro environment improves and with spending remaining below peak levels, Obin said in the Thursday upgrade note. 

The recent decline in interest rates alongside strong GDP growth could propel a housing market recovery in the U.S. in 2019, the analyst said. 

Institutional construction spending has continued runway that will benefit Ingersoll-Rand, Obin said. 

The company could deliver 6-percent core growth in 2019, significantly higher than the sector’s average of 4-percent growth, the analyst said. 

The better growth prospects reflect Ingersoll-Rand’s high exposure to the U.S., which accounts for 64 percent of total revenue as well as its continued share gain, he said. 

The company could achieve accelerating EPS growth backed by cyclical leverage of its Industrial segment and improved operating leverage due to stabilizing materials costs, Obin said. 

“While we recognize that the stock has been one of the best performers in the past few years, we see additional upside potential to IR over the coming year, as we think investors will likely be willing to pay up for premium organic growth, better EPS growth visibility and structurally higher service business." 

BofA said its price target revision also reflects the company’s recently announced acquisition of Precision Flow Systems.

Price Action

Ingersoll-Rand shares were up 1.36 percent at $112.20 at the time of publication Thursday. 

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Photo courtesy of Ingersoll Rand.