Ingersoll-Rand Is Goldman's Top Value Idea For 2018

2017 was a solid year for the multi-industry segment, and Goldman Sachs analysts said they're encouraged that favorable headwinds throughout the year will persist into 2018 for a select few companies, including Ingersoll-Rand PLC (NYSE: IR).

The Analyst

Goldman Sachs' Joe Ritchie upgraded Ingersoll-Rand's stock rating from Neutral to Buy with a $100 price target and named the stock Goldman's "favorite value idea" in the space.

The Thesis

The case for buying Ingersoll-Rand's shares at this point in time is straightforward: the stock has been a laggard since the start of 2017, having gained just 15 percent versus an average of 25 percent among peers, Ritchie said in an industrywide research report. (See Ritchie's track record here.) 

The trend could reverse in 2018 amid expectations for a reacceleration in the company's EPS and free cash flow from, Ritchie said. The EPS and FCF drivers are, according to the analyst:

• Sustained growth in the climate business.
• An acceleration in industrial growth.
• Improved price and cost headwinds.
• Improving mix in the China commercial HVAC business.

Ingersoll-Rand's stock appears "inexpensive" at current levels, as it's trading at 15x the analyst's 2019 EPS estimate, which represents a 20-percent discount to coverage versus a 10-to-15 percent historical average, Ritchie said.

Goldman's $100 price target implies a 17x multiple on 2019 EPS — which is still an 11-percent discount to the group, making the stock an attractive buy at current levels.

Price Action

Shares of Ingersoll-rand were trading higher by 1.61 percent at $87.61 at the time of publication. 

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