Wells Fargo Upgrades Ingersoll-Rand On Higher ClimateCo Potential

Ingersoll-Rand PLC IR is on track to spin-off its industrial business (IndustrialCo) in early 2020 and the potential of standalone ClimateCo seems “ready to be realized post-split,” according to Wells Fargo.

The Analyst

Wells Fargo’s Deepa Raghavan upgraded Ingersoll-Rand from Market Perform to Outperform, while raising the price target from $122 to $150.

The Thesis

While the primary investor concern is around management underestimating the cost and complexity of the split, there seems to be no evidence to this, Raghavan said in the note.

“We think IR has good precedence spinning Allegion out successfully,” the analyst wrote, while adding that the spun off was executed as originally planned and the stranded costs remained within the estimates.

Raghavan mentioned that the upgrade in rating was driven by sentiment. She explained that both investor and Street sentiment was now lower.

The stock reflects too much concern related to the non-residential peak cycle and the U.S. residential HVAC (heating, ventilation and air conditioning) cycle, the analyst added.

Raghavan expects ClimateCo’s operating margins to expand by 60-70 basis points annually and EBITDA margins to improve 50 basis points annually till 2022.

Price Action

Shares of Ingersoll-Rand were up 2.33% to $132.03 at the time of publishing on Friday.