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Parker-Hannifin Displays Bright Prospects, Risks Persist

Zacks Equity Research

On Jan 11, we issued an updated research report on Parker-Hannifin Corporation PH.

In the past month, this Zacks Rank #3 (Hold) stock has yielded a return of 1.3% against industry’s decline of 2.5%.


Existing Scenario

Parker-Hannifin believes that increased sales volume, increased productivity, operating cost improvements and acquisition paybacks will continue strengthening its profitability. Notably, the company raised its adjusted earnings view for fiscal 2019 (ending June 2019) from $10.90-$11.50 per share to $11.10-$11.70.

Its first-quarter fiscal 2019 (ended September 2018) revenues improved 3.4% year over year. The company stated that the upside was backed by stronger sales generated from its aerospace and industrial end-markets. Moreover, benefits of its unique Win Strategy and ongoing innovation investments supported the upside.

The company believes that these positives will continue driving its revenue growth. Parker-Hannifin currently anticipates organic revenue growth of 2.5-5.3% for fiscal 2019, higher than the prior view of 2.3-5.1%.

The company intends to finance new growth-based investments, acquire businesses and boost shareholder’s remuneration with increased liquidity. Also, the integration process of its CLARCOR acquisition (March 2017) is on track. The company noted that the buyout will likely bring in synergy savings worth $125 million in fiscal 2019 and roughly $160 million in fiscal 2020 (ending June 2020).

However, the company expects that in second-quarter fiscal 2019 (ended December 2018; results not yet released), realignment expenses and CLARCOR integration cost will lower its earnings by 4 cents per share and 2 cents per share, respectively. For full-fiscal 2019, the company expects to incur business-realignment expenses of $22 million and roughly $13 million of CLARCOR integration cost.

Also, the stock looks relatively more leveraged than the industry. Its debt/capital ratio is 0.4, higher than 0.3 recorded by the industry.

Key Picks

Some better-ranked stocks from the same industry are DXP Enterprises, Inc. DXPE, Barnes Group, Inc. B and Colfax Corp. CFX. While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), Barnes Group and Colfax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXP Enterprises exceeded estimates thrice in the preceding four quarters, the average positive earnings surprise being 112.62%.

Barnes Group surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 7.04%.

Colfax outpaced estimates in each of the preceding four quarters, the average earnings surprise being 8.88%.

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