Parker-Hannifin Corporation (PH) in Cleveland, Ohio, offers a diversified portfolio of motion and control technologies and systems for various mobile, industrial, and aerospace markets worldwide. The company operates through two segments: Diversified Industrial and Aerospace Systems. PH benefitted from robust demand for its industrial end-market offerings amid the rebounding economy last year.
The shares of the industrial manufacturer have gained 17.5% in price over the past year and 3.2% over the past three months to close yesterday’s trading session at $313.89. The stock is currently trading 6.3% below its 52-week high of $334.98, which it hit on Nov. 15, 2021. However, Wall Street analysts’ $368.42 median price target indicates a 17.4% potential upside from its last closing price. In addition, according to a recent report, Wells Fargo maintained a Buy rating on the stock, with a price target of $363.00.
In the middle of 2021, the company announced its agreement to acquire Coventry, U.K.-based Meggitt, a global leader in aerospace and defense motion and control technologies. The transaction is expected to close in the third quarter of this year. This acquisition should help strengthen its aerospace solutions portfolio and develop innovative and sustainable technologies.
Here is what could shape PH’s performance in the near term:
Attractive Dividend Paying History
PH’s $4.12 annual dividend yields 1.32% at the current share price. In April 2021, the company declared a regular quarterly dividend of $1.03 per share of common stock, representing a 17% hike from the prior dividend of $0.88. PH has increased its annual dividends per share for 65 consecutive fiscal years and stands among the top companies with the longest dividend-increase records. PH’s dividend payouts have increased at CAGRs of 10.5% over the past three years and 9.5% over the past five years.
Solid Growth in its Last Reported Quarter
For the fiscal first quarter, ended Sept. 30, PH’s sales came in at a first-quarter record $3.76 billion, increasing 16.5% year-over-year. Also, its net income increased 41.1% from its year-ago value to a record $451.16 million, while its earnings per share increased 40.8% year-over-year to a record $3.45. Its adjusted earnings per share increased 39.7% from the prior-year quarter to $4.26. And its adjusted EBITDA rose 28.7% year-over-year to $833.03 million. Overall, its orders were up 26% year-over-year.
Favorable Analysts Sentiments
The Street expects year-over-year revenue growth of 9% in its current fiscal year, and 7.4% in the next fiscal. Furthermore, the company’s EPS is expected to grow 13.7% year-over-year in the about to be reported quarter, ended December 2021, 17.2% in its current fiscal year, and 11% in its following fiscal year. In addition, analysts expect its EPS to grow 10.9% per annum over the next five years.
Also, the company has raised its guidance for EPS for the fiscal year ending June 30, 2022, to a $14.52 - $15.22 range, or $16.95 - $17.65 on an adjusted basis, assuming organic sales growth of approximately 7% - 10%, versus the prior year. “Robust demand trends continue across nearly all of our end markets, reinforcing our positive outlook for sales and earnings per share for this fiscal year,” said Chairman and Chief Executive Officer Tom Williams.
Furthermore, PH has surpassed the Street’s revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Impressive Profitability
PH’s respective net income and levered FCF margins of 12.62% and 10.28% are 97.2% and 94.2% higher than the 6.40% and 5.29% industry averages. Moreover, PH’s 25.00%, 9.28%, and 10.82% respective ROE, ROA, and ROTC compare with the 13.58%, 5.15%, and 6.73% industry averages.
POWR Ratings Reflect Growth Prospects
PH has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment, which is consistent with favorable analysts’ sentiment toward the stock.
PH has a B grade for Quality. Its higher-than-industry profit margins justify this grade.
Of 93 stocks in the Industrial - Equipment industry, PH is ranked #20.
Beyond what I have stated above, you can also view PH’s grades for Value, Growth, Momentum, and Stability here.
View the top-rated stocks in the Industrial – Equipment industry here.
Bottom Line
The solid demand for PH’s end-market products helped the company perform well amid a challenging manufacturing environment last year. Furthermore, analysts are bullish on PH’s near-term prospects. In addition, the company is expected to benefit largely from President Biden’s infrastructure spending. Also, considering the company’s stable dividend payouts, I think it could be an attractive buying option for income investors.
How Does Parker-Hannifin Corporation (PH) Stack Up Against its Peers?
PH has an overall POWR Rating of B. However, one could also check out these other stocks within the Industrial – Equipment industry with an A (Strong Buy) rating: Applied Industrial Technologies, Inc. (AIT), Standex International Corporation (SXI), and Titan Machinery Inc. (TITN).
PH shares were unchanged in premarket trading Thursday. Year-to-date, PH has declined -1.33%, versus a -7.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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