We think the shares are a suitable core holding in a

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are reiterating our BUY rating and raising our target price to $105. We think the shares are a suitable core holding in a diversified portfolio. RECENT DEVELOPMENTS IR shares have outperformed over the last quarter, gaining 5% while the S&P 500 has risen 2.2%. Over the past year, the shares have underperformed, advancing 13% while the market has gained 15.6%. IR shares have also underperformed the industry ETF IYJ over the past year but have outperformed over the past 5- and 10-year periods. The beta on IR shares is 1.24. On January 31, the company reported 4Q EPS that rose more than 20% but fell just shy of Street expectations. Fourth- quarter revenue grew 6% on an organic basis to $3.7 billion. Bookings advanced a stronger 5% to $3.6 billion. The adjusted operating margin rose 20 basis points to 11.1%. Adjusted EPS increased 21% to $1.02, compared to the consensus forecast of $1.03. For the full year, the company earned $4.51 per share, once cent above management’s target. On a conference call to discuss 4Q results, management established guidance for 2018. It expects adjusted EPS from continuing operations of $5.00-$5.20, and organic revenue growth of 3.0%-3.5%. EARNINGS & GROWTH ANALYSIS Ingersoll-Rand has two primary business segments: Climate (78% of 4Q sales) and Industrial (22%). The Climate segment provides heating, ventilation and air conditioning (HVAC) systems, and consists of brands such as Trane and Thermo King. The Industrial segment provides a diverse range of products and services, including compressed air systems, power tools, and golf carts. Fourth-quarter results and outlooks by segment are summarized below. In the Climate segment, revenue rose a solid 6% year-over-year on an organic basis. The operating margin was 12.6%, down 100 basis points from the prior year. Bookings rose 7% organically. In the Residential HVAC business, sales and bookings picked up to low-teens and high-single digit rates. In Transportation Refrigeration, the company noted improvement in revenue but a decline in bookings due to weakness in North America trailer and marine. Commercial HVAC reported that organic revenue growth was up in the mid-single digits, while bookings rose at higher rates; margins declined as the company targeted underpenetrated markets in China, but this initiative is expected to be accretive to EPS in 2018 and beyond. Revenue in the Industrial segment rose 5% on an organic basis, above the long-term trend. Bookings increased 12%, signaling even better growth ahead. The segment adjusted operating margin rose 220 basis points from the prior year to 12.9%. This business, which has been exposed to challenging macro trends in commodities and energy, appears on the road to recovery. Management has been focusing on cost-cutting and expects continued margin improvement in 2018. In a sign that energy markets are recovering, bookings in Compression Technologies increased in the mid-teens. Bookings in Industrial Products and Club Car were both higher. We continue to look for solid growth in 2018.
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