Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) and senior unsecured debt of Ingersoll Rand Inc. (NYSE: IR ) to ’BBB+’ from ’BBB’ on May 22, 2025. The rating outlook for the company is stable.

The upgrade comes after IR successfully managed leverage following the debt-funded acquisition of ILC Dover (NYSE: DOV ) in 2024. The company’s business portfolio, focused on high-growth markets where it holds strong positions, and its EBITDA and FCF margins, which are notably strong compared to ’BBB’ category peers, contributed to the upgrade. Fitch anticipates that IR will continue to manage its capital in a credit-conscious manner, keeping gross EBITDA leverage below the mid-2x range, with limited exceptions above the company’s net leverage target of under 2x.

The ’BBB+’ credit profile takes into account IR’s effective execution of its financial, operating, and acquisition strategies. Fitch expects EBITDA margins to remain in the high 20% range, with potential for further expansion due to the company’s focus on new product development, cost efficiency, and synergies among IR’s existing and acquired businesses.

Even though IR’s acquisition activity may occasionally lead to higher leverage, Fitch expects any increase above its negative sensitivity to be temporary. Following the acquisition of ILC Dover in 2024, IR’s gross EBITDA leverage was 2.4x as of March 31, 2025, and EBITDA net leverage was 1.6x.

IR’s business portfolio and increasing scale position the company to capitalize on secular growth trends and expand its presence in fragmented, niche markets with attractive demand and margin growth. The company is also positioned to benefit from long-term secular tailwinds around energy transition, sustainability, and digitization, despite variability in government policy.

IR’s acquisition model, higher pricing, and cost management have offset recent organic sales declines and changes in trade policies that create disruptions in the supply chain and uncertainty around near-term demand. The company estimates tariff cost at approximately $150 million, all of which it expects to offset over time through pricing, changes to the supply chain, and operating adjustments.

IR’s EBITDA and FCF margins compare well with other industrial companies and support the company’s financial flexibility. The company’s margins reflect the technology content and essential nature of its products for customer applications as well as the relatively high proportion of IR’s aftermarket sales that typically support favorable pricing.

IR’s discretionary spending is largely directed toward acquisitions and share repurchases, and capital expenditures are within the normal range for IR’s industrial peers, while the company makes investments to support growth. Pension funding is minimal, and IR expects to contribute approximately $12 million to pension plans in 2025.

IR uses acquisitions to grow its core business, expand in adjacent industrial markets, and increase its size to improve operating efficiency and profitability. The large $2.3 billion acquisition of ILC Dover in 2024 increased IR’s presence in the life sciences market and in aerospace and defense, further diversifying its revenue base.

IR’s focus on higher-value products, well-established competitive position, and consistent financial performance are similar to mid-to-high ’BBB’ category peers in the industrial sector. The company’s scale and diversification are not as broad as some large industrial peers, but IR compares well with respect to EBITDA and FCF margins, and its business portfolio is effectively positioned in attractive, higher-growth end markets.

Fitch’s key assumptions for IR include sales increase each year by low-to-mid-single digits including organic growth and acquisitions, active acquisition spending is maintained near historical averages and is directed toward adjacent end-markets that support margin growth and market share, EBITDA margins as calculated by Fitch are sustained in the high 20% range, the impact of tariffs is offset by pricing actions and adjustments to IR’s operations and the supply chain, FCF margins are in the mid-to-high teens, reflecting low capital intensity and effective working capital management, and gross EBITDA leverage is sustained below the mid-2x range although temporary increases could occur following acquisitions.

The factors that could lead to a negative rating action or downgrade include increased cash flow volatility or reduced financial flexibility as a result of a shift in acquisition and capital allocation policies, or mid-cycle EBITDA leverage sustained above 2.5x. Meanwhile, factors that could lead to a positive rating action or upgrade include a continued commitment to acquisition and capital allocation policies that retain financial flexibility through the cycle, contribute to low FCF variability, and enhance IR’s operating profile, effective integration of acquisitions, and mid-cycle EBITDA leverage sustained below 2x.

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