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Parker-Hannifin Reveals New "Win Strategy": Will it Benefit?

Zacks Equity Research

Recently, Parker-Hannifin Corporation PH disclosed the latest version of its core business system, “Win Strategy”, at a New York Investor meeting. However, following this news, the shares of the company dipped about 1.1% during the regular trading session on Sep 23, probably on broader market concerns.

While the modified version of the “Win Strategy” will run on the originally chalked principles, the new goals are included to boost speed and performance. The new strategies include Engaged People, Premier Customer Experience, Profitable Growth and Financial Performance. Additionally, Parker Hannifin set new financial plans, which comprised of a goal of reaching 17% segment operating income margin and 17% return on invested capital in the upcoming five years.

In particular, the Engaged People clause involves increasing engagement and ownership by the company personnel, ensuring high performance; Premier Customer Experience entails raising focus on enhancing customer experience instead of ‘service’; Profitable Growth comprises strategic approach to leverage organic sales growth by 150 basis points faster than industrial market rate via three paths – organic, acquisition and services; and Financial Performance clause entails driving top-quartile financial performance coupled with strong year-over-year earnings growth as compared to the proxy peer group.

Our Take

We believe the improvised ”Win Strategy” came in the nick of time for this Zacks Rank #5 (Strong Sell) stock that significantly missed the Zacks Consensus Estimate by 22.7% for fourth-quarter fiscal 2015. Also, the company’s earnings declined 30.6% on a year-over-year basis mainly due to currency headwinds. We expect this new strategy to aid Parker Hannifin in starting the fiscal year 2016 on a positive note.  

As a matter of fact, Parker Hannifin originally launched the “Win Strategy” way back in 2001. The company had been focusing on renewing its “Win Strategy” and thus has accepted inputs from key stakeholders over the past six months to take its performance to the next level. Simplification of business and cost-saving measures remain the primary agendas for Parker-Hannifin at present. Also, the firm is streamlining business and corporate functions, as well as removing complex bureaucracy from its organizational structure in order to create a “leaner” frame. The company has also devised a complimentary business realignment action, that when combined with the simplification initiative, will likely strengthen the manufacturing footprint, going forward. 

Better-ranked stocks in the same space include Graco Inc. GGG, Luxfer Holdings PLC LXFR and AGCO Corporation AGCO. All stocks carry a Zacks Rank #2 (Buy).

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AGCO CORP (AGCO): Free Stock Analysis Report
 
PARKER HANNIFIN (PH): Free Stock Analysis Report
 
GRACO INC (GGG): Free Stock Analysis Report
 
LUXFER HOLDINGS (LXFR): Free Stock Analysis Report
 
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Zacks Investment Research