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Ingersoll (IR) Buys Seepex, Discusses Capital Allocation Strategy

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Ingersoll Rand Inc. IR yesterday announced that it completed the acquisition of Bottrop, Germany-based Seepex GmbH for €431.5 million in cash. Concurrently, the company communicated its decision not to engage with SPX FLOW, Inc.’s FLOW strategic alternative process.

Ingersoll also put forward its capital allocation strategy, which primarily focuses on building opportunities through mergers and acquisitions, and returning healthy rewards to shareholders.

Ingersoll’s shares yesterday ended the trading session at $52.74, reflecting a 0.53% fall from the previous trading day.

Inside the Headlines

Seepex specializes in manufacturing and providing progressive cavity pumps — including food, standard, metering, open hopper, semi-submersible and others. Prime markets served include chemical, water, food and beverage, and wastewater. It has facilities in the Asia Pacific and North America as well as an installed base of 0.21 million pumps. Its aftermarket business (recurring in nature) accounts for more than 40% of revenues annually. In 2021, it is predicted to generate revenues of €160 million, with double-digit year-over-year growth.

The Seepex buyout is anticipated to strengthen Ingersoll’s product portfolio, enhance its technical and digital capabilities, and boost its aftermarket growth opportunities. Also, Seepex’s presence in multiple end markets and geographies (especially in Europe, Asia and the Americas) and an employee base of 800 people will likely prove to be boons for Ingersoll.

The acquired assets will be part of Ingersoll’s Precision and Science Technologies (“PST”) segment and are anticipated to increase the segment’s total addressable market by $1.7 billion. Notably, the PST segment manufactures products like doing and metering pumps (for use in multiple industries), and liquid and gas pumps for use in life sciences, lab and medical markets. Key brands are Hartell, Welch, ARO, Dosatron and others. In first-quarter 2021, the segment generated revenues of $215.7 million, reflecting growth of 12.2% from the year-ago quarter. It represented 15.7% of Ingersoll’s total second-quarter revenues.

As regard to the SPX FLOW strategic alternatives, Ingersoll has decided not to pursue or participates in any manner. Ingersoll, in June, proposed to buy all shares of SPX FLOW for $85.00 per share, while it extended a per-share offer of $81.50 in May. Both offers were rejected by SPX FLOW’s board of directors.

Now, focusing on Ingersoll’s capital allocation strategy, mergers and acquisitions are given due importance. So far in 2021, the company has acquired Seepex GmbH, Maximus, and Tuthill Vacuum and Blower Systems.

Ingersoll noted that a quarterly dividend program has been approved by its board of directors. It will initiate paying a quarterly dividend of 2 cents per share to its shareholders from fourth-quarter 2021. A share buyback worth $750 million also has been approved by the company’s board of directors. The program allows share repurchases through negotiated transactions (private), open market or other means.

The above-mentioned capital allocation strategy along with organic growth investments — directed to boost demand, aftermarket business, product development, digitization, sustainability and talent — is likely to be funded through receipts from Ingersoll’s recently divested business and free cash flow. Maintaining a flexible balance sheet, with net leverage of less than 2.0X, is another priority for the company.

Zacks Rank, Price Performance and Estimate Trend

With a market capitalization of $22.3 billion, Ingersoll currently carries a Zacks Rank #2 (Buy). The company is poised to benefit from solid product offerings, diversified business structure, acquired assets and innovation capabilities. Raw material and logistics-related woes might be concerning.

In the past three months, the company’s stock has gained 7.3% against the industry’s decline of 0.8%.

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Zacks Investment Research

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The Zacks Consensus Estimate for Ingersoll’s earnings is pegged at $1.83 for 2021 and $2.11 for 2022, reflecting growth of 7.6% and 6% from the 60-day-ago figures. Also, the estimate for third-quarter 2021 earnings at 48 cents reflects an increase of 9.1% from the 60-day-ago figure of 44 cents.

Ingersoll Rand Inc. Price and Consensus

Ingersoll Rand Inc. Price and Consensus
Ingersoll Rand Inc. Price and Consensus

Ingersoll Rand Inc. price-consensus-chart | Ingersoll Rand Inc. Quote

Other Stocks to Consider

Two other top-ranked stocks in the industry are Kadant Inc. KAI and Applied Industrial Technologies, Inc. AIT. While Kadant currently sports a Zacks Rank #1 (Strong Buy), Applied Industrial carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for the companies improved for the current year. Further, the earnings surprise for the last reported quarter was 33.11% for Kadant and 27.97% for Applied Industrial.

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