Ingersoll Rand Ends 2022 With Solid Fourth Quarter

Narrow-moat-rated Ingersoll Rand IR ended 2022 with a solid fourth quarter, as its full-year revenue of $5,916 million and adjusted EPS of $2.36 both came in above our expectations ($5,823 million and $2.17, respectively). After rolling our model forward one year, we’ve modestly raised our fair value estimate to $63 from $62, mostly due to time value of money.

Ingersoll Rand grew its fourth-quarter organic revenue by 19% from the prior-year period. Industrial technologies and services organic revenue was up 22%, with broad-based growth across all regions and product lines. Precision and science technologies organic revenue increased by 9%, driven by continued strong momentum in product lines serving industrial end markets, including ARO and YZ Systems. Despite persistent cost inflation and supply chain constraints, Ingersoll Rand expanded its fourth-quarter adjusted EBITDA margin by 180 basis points year over year, from 24.1% to 25.9%.

Management initiated its outlook for 2023 and anticipates full-year organic revenue growth of 3%-5%, adjusted EBITDA of $1,570 million-$1,630 million, and adjusted EPS of $2.48-$2.58. The midpoint of management’s guidance range came in above our previous $2.49 estimate. The company remains on track to deliver mid-single-digit organic revenue growth through 2025.

We are encouraged by Ingersoll Rand’s continued solid margin expansion, especially given a challenging macroeconomic environment. Furthermore, we believe that the firm’s strong liquidity position, with a net leverage ratio of 0.8 times at the end of 2022, positions it well to continue executing its cash compounder model. In 2022 Ingersoll-Rand completed 12 acquisitions, adding roughly $300 million in annualized revenue, and management said on the earnings call that it expects to add another $200 million-$300 million in annualized inorganic revenue in 2023.