NEW YORK (Reuters) - Shares of Ingersoll-Rand Co. Ltd. (IR.N: Quote, Profile, Research, Stock Buzz) are undervalued compared to its peers because investors are concerned about the company's performance in the next economic downturn, the diversified manufacturer's chief executive said on Monday.
Investors have not recognized the company's breadth of products and geographic reach, Henkel said, and instead treat Ingersoll like a machinery maker or a "deep cyclical" company.
"What it shows is the degree to which the investment community has not given us full credit for being a diversified industrial," Henkel said at the Reuters Manufacturing and Transportation Summit in New York.
He pointed to a price-to-earnings ratio well below those of its rivals.
Ingersoll-Rand trades at about 12 times next year's projected earnings, compared with a multiple of 17 for Emerson Electric Co. (EMR.N: Quote, Profile, Research, Stock Buzz), and 18 at Danaher Corp. (DHR.N: Quote, Profile, Research, Stock Buzz). Rivals Illinois Tool Works (ITW.N: Quote, Profile, Research, Stock Buzz) and Dover Corp. (DOV.N: Quote, Profile, Research, Stock Buzz) sell for about 15 times estimated earnings.
Henkel said the most common question potential investors ask him is whether he will be able to cushion the hit to earnings in the next downturn. The answer, he said, depends on which of the company's many businesses one analyzes, since each will peak, or bottom out, at different times.
Ingersoll-Rand products range from golf carts and small construction equipment to refrigeration systems, security networks, and pneumatic tools used in manufacturing.
The stock's relatively low P/E ratio is one reason Ingersoll is stepping up its share buyback this year, to about $800 million from an earlier estimate of $600 million.
"We have a low-priced stock," Henkel said. "If you do the math, you wind up saying, I can go buy back our shares and get a 15 percent return on that investment just by delivering the EPS number."
The company last month raised its full-year earnings estimates for the year, saying it expects earnings from continuing operations of $3.50 to $3.60 per share. Analysts, on average, forecast a profit of $3.53, according to Reuters Estimates.
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