A Board Member Bought Shares of Ingersoll-Rand

Ingersoll-Rand’s closest peer is Johnson Controls, Inc. (NYSE:JCI), which has a building interior controls as well as an auto parts business. Johnson trades at a premium to Ingersoll-Rand, with a trailing P/E of 19, and its earnings were actually down 17% in the fourth quarter of 2012 versus a year earlier. While that may be in part due to the auto related business, it certainly seems like a worse stock to buy on its face and it might be worth thinking about a pair trade here if further research backed Johnson as a more expensive but less attractive business.

We can also compare Ingersoll-Rand to other machinery companies including General Electric Company (NYSE:GE), Eaton Corporation, PLC (NYSE:ETN), and United Technologies Corporation (NYSE:UTX). Trailing earnings multiples at these three companies are in the 16-18 range, so again on that basis the company at least seems competitive in value terms. However, all three of these peers can boast decent revenue growth rates, including over 10% at GE and UT, and net income figures have generally been higher as well. As a result they may be more fertile ground for value investors; in addition, if Johnson does look to be a good short, GE or UT would likely be better choices for the long side of any pair trade.

The insider purchase at Ingersoll-Rand is a plus, but in absolute terms- and certainly compared to at least some similar companies- the valuation implies considerable growth over the next couple years and this is not what the business has been doing recently. As a result we are skeptical that it truly is a good buy right now.

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