Shares of Ingersoll Rand (IR) fell hard Friday after the company missed earnings estimates when it reported Q4 numbers before the bell. The diversified manufacturer of capital goods came in with profits of $139 million, or $0.42/share, which actually looks fairly positive when compared to a loss of $3.29 billion, or $10.27/share, for the same quarter last year. That monster loss, however, was due to a significant write-down related to IR’s acquisition of Trane, a heating and air conditioning company. Minus the write-down, IR earned $0.48/share for the same period last year. The Street had been looking for $0.52/share.
Beyond the shortfall for the quarter, Ingersoll also disappointed on its forecast, for the near-term at least. Management expects Q1 2010 earnings of between $0.15 – $0.20/share, which came in well below expectations of $0.38/share. Q1 revenue forecasts came in roughly in-line with expectations. For the full 2010 FY, management actually upped forecasts by $0.20 to between $2.20 – $2.60/share, the mid-range of which is above current Street estimates of $2.30/share.
What does all of this add up to? An 8% single-day loss, that’s what. Shares, which had rallied up to about $34 on Thursday, opened at just above $30, good for a greater than 10% decline. But shares were able to put together a bit of a rally throughout the day, finally closing at $31.26. It wasn’t all bad, though, as S&P upgraded IR to Buy from Neutral by mid-day, citing expected improvements in the residential and service-related sectors of IR’s business. They maintain a $40 target.
In the end, the performance of a company like Ingersoll Rand is going to be closely tied to that of the economy. If you believe that we will be trading significantly higher on the S&P at the end of the year, then this is a good opportunity to get behind a diversified industrial like IR on weakness. But if you’re in the double-dip camp, then you’ll want to look for somewhere else to park your money.
If you’re looking for a trade, IR had been forming a rectangular base for about three months leading into the general market weakness of the last few weeks, at which point shares broke out downward. After gapping further down off the earnings miss, shares were able to hold their 200-day moving average. If you think we are in for more near-term weakness, you could considering shorting the shares, though IR may not be the greatest candidate for a short after taking the beat down it did on Friday. If you’re looking to go long for an intermediate-term play, I would wait for a break of the 50-day MA, preferably on volume.
Disclosure: No holdings in IR.