Thursday, April 10, 2014

Which is Better Value, Ingersoll-Rand or Johnson Controls?

Anyone who believes the winter weather caused unnatural weakness in U.S. construction, and that activity will subsequently rebound, will be interested in Ingersoll-Rand. Along with Johnson Controls, which has a large building efficiency segment, Ingersoll-Rand has possibly given conservative guidance because of the weather. Is this enough of an argument to make the stock a buy? And what does it mean for Johnson Controls?

Ingersoll-Rand's earnings drivers
The key to answering this question is to appreciate how the company makes its money. Following the spin-off of its commercial and residential security businesses, called Allegion, Ingersoll-Rand's focus is on climate control and industrial solutions, with around 67% of segmental income coming from the former. Overall revenue growth is forecast to come in at 3%-4% for 2014, with the split between segments as follows:

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