It’s been a good week for Ingersoll-Rand Plc (NYSE:IR) shareholders, because the company has just released its latest yearly results, and the shares gained 2.0% to US$133. It looks like the results were a bit of a negative overall. While revenues of US$17b were in line with analyst predictions, statutory earnings were less than expected, missing estimates by 3.0% to hit US$5.77 per share. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from Ingersoll-Rand’s 20 analysts is for revenues of US$17.2b in 2020, which would reflect a satisfactory 3.9% increase on its sales over the past 12 months. Statutory earnings per share are expected to surge 21% to US$6.79. In the lead-up to this report, analysts had been modelling revenues of US$17.3b and earnings per share (EPS) of US$6.88 in 2020. So it’s pretty clear that, although analysts have updated their estimates, there’s been no major change in expectations for the business following the latest results.
It will come as no surprise then, to learn that the consensus price target is largely unchanged at US$141. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic Ingersoll-Rand analyst has a price target of US$157 per share, while the most pessimistic values it at US$115. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. We would highlight that Ingersoll-Rand’s revenue growth is expected to slow, with forecast 3.9% increase next year well below the historical 5.3%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 1.6% next year. Even after the forecast slowdown in growth, it seems obvious that analysts still thinkIngersoll-Rand will grow faster than the wider market.
The Bottom Line
The most important thing to take away is that there’s been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – and our data does suggest that Ingersoll-Rand’s revenues are expected to grow faster than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Ingersoll-Rand going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Ingersoll-Rand’s balance sheet, and whether we think Ingersoll-Rand is carrying too much debt, for free on our platform here.
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