Insider Trading Alert: Insiders Are Really Bullish About Ingersoll-Rand PLC (IR)

Cash flow from operations, however, has been up so far this year. About a third of CFO has been used on capex, with the company borrowing in order to help fund significant share repurchases. The stock is valued at 20 times trailing earnings; markets seem to be pricing in further buybacks, as well as an increase in earnings growth.

Peers for Ingersoll-Rand PLC (NYSE:IR) include Johnson Controls Inc (NYSE:JCI), General Electric Company (NYSE:GE), Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), and United Technologies Corporation (NYSE:UTX). Johnson is valued at 27 times its trailing earnings, though that seems to be in part due to temporary setbacks at the company and Wall Street analysts are forecasting enough improvement in the next fiscal year that the forward P/E is only 13 (a slight discount in that basis to Ingersoll-Rand, which trades at 15 times forward earnings estimates). The other three peers are valued at trailing P/Es in the 16-20 range. The sell-side expects high EPS growth at GE and Eaton. While Eaton has done well recently, GE’s financial results were about flat in the second quarter of 2013 versus a year earlier.

The consensus insider purchases at Ingersoll-Rand are interesting, although at least on the surface there seems to be little reason to prefer the company to its peers. The business does produce plenty of cash flow which can be returned to shareholders, but we consider buybacks to be a more useful factor when they are supplementing existing increases in earnings. With pretax income showing little change recently we are not yet persuaded that the stock is a buy at its current earnings multiples.

Disclosure: I own no shares of any stocks mentioned in this article.