Trane Technologies PLC (TT, Financial) has seen a -2.14% change in its stock price, closing at $202.88 on September 14, 2023. Despite this slight dip, the company has enjoyed a 12.87% gain over the past three months. With an Earnings Per Share (EPS) (EPS) of 8.11, the question arises: Is the stock fairly valued? This article delves into the intrinsic value of Trane Technologies PLC, providing a comprehensive analysis of its valuation, financial strength, profitability, and growth prospects. Let's dive in.
Company Overview
Trane Technologies PLC is a leading manufacturer and service provider of commercial and residential HVAC systems and transportation refrigeration solutions. The company operates under prominent brands such as Trane, American Standard, and Thermo King. With sales of $16.80 billion, Trane Technologies PLC generates approximately 70% of its revenue from equipment and 30% from parts and services. The company is headquartered in Ireland, but North America accounts for over 70% of its revenue. Despite its international presence, the company's stock price closely aligns with its GF Value, indicating a fair valuation.
Understanding GF Value
The GF Value is a unique valuation model that estimates a stock's intrinsic value based on historical trading multiples, an adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. If the stock price significantly deviates from the GF Value Line, it indicates that the stock may be overvalued or undervalued, which could affect its future returns.
For Trane Technologies PLC, the GF Value indicates that the stock is fairly valued. This means that the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Trane Technologies PLC has a cash-to-debt ratio of 0.13, ranking lower than 83.48% of 1610 companies in the Construction industry. Based on this, GuruFocus ranks Trane Technologies PLC's financial strength as 6 out of 10, suggesting a fair balance sheet.
Evaluating Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Trane Technologies PLC has been profitable 10 over the past 10 years. The company's operating margin is 15.83%, ranking better than 87.3% of 1614 companies in the Construction industry. Trane Technologies PLC's 3-year average revenue growth rate is better than 66.5% of 1555 companies in the Construction industry. These figures suggest strong profitability and promising growth prospects.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) is another way to assess its profitability. If the ROIC exceeds the WACC, it implies the company is creating value for shareholders. Trane Technologies PLC's ROIC for the past 12 months is 16.54, surpassing its WACC of 8.59.
Conclusion
Trane Technologies PLC's stock appears to be fairly valued, given its financial condition, strong profitability, and promising growth prospects. For a deeper understanding of Trane Technologies PLC's financials, check out its 30-Year Financials here.
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