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Parker-Hannifin's Exotic Metals Buyout to Aid Aerospace Group

Zacks Equity Research

Parker-Hannifin Corporation PH yesterday announced that it completed the acquisition of Kent, Washington DC-based Exotic Metals Forming Company LLC. The transaction value was $1.725 billion in cash. Notably, the buyout agreement was announced in July 2019.

It is worth mentioning here that Parker-Hannifin’s share price has grown roughly 3% since the buyout agreement was signed on Jul 29, 2019. The closing price was $179.18 per share at the end of yesterday’s trading session.

Exotic Metals engages in manufacturing and providing state-of-the-art high-pressure air, high temperature and exhaust management solutions for engines and aircraft. Some of its products are exhaust ducts, anti-ice system ducting, complex engine components, engine build up ducting and primary exhaust assemblies. It has employee strength of 1,600 people and generates $450 million in sales annually.

Details of Buyout

As noted, Parker-Hannifin funded the transaction through debts and believes that the buyout will not impact its dividend payouts. Exotic Metal will be integrated with Parker-Hannifin’s Aerospace Group and will work independently within the group.

Through its manufacturing capabilities and unique products, the Exotic Metal buyout will help in strengthening Parker-Hannifin’s aerospace products and solutions. By fiscal 2023 (ending June 2023), Parker-Hannifin anticipates realizing synergies (pre-tax) of $13 million from the buyout through the implementation of its Win Strategy initiatives and joining supplier networks.

In addition, Parker-Hannifin anticipates the buyout to boost organic growth; earnings before interest tax, depreciation and amortization (EBITDA) margin; cash flow; and earnings. Also, return on invested capital is expected to be roughly in a high-single digit in the fifth year.

Strengthening Portfolio Through Buyouts

We believe that the above-mentioned transaction is consistent with Parker-Hannifin’s policy of acquiring businesses to gain access to new customers, regions and product lines.

In April 2019, Parker-Hannifin signed an agreement to acquire LORD Corporation for cash totaling $3.675 billion. Upon completion, the buyout is anticipated to boost Parker-Hannifin’s engineered materials product and solutions offerings. The company believes that this buyout will be accretive to organic growth, EBITDA margins, earnings and cash flow.

Zacks Rank, Estimates and Price Performance of Parker-Hannifin

The company, with approximately $23.4-billion market capitalization, currently carries a Zacks Rank #3 (Hold).

In the past 60 days, earnings estimates for Parker-Hannifin have been lowered. The Zacks Consensus Estimate for its earnings is pegged at $11.95 for fiscal 2020 (ending June 2020) and $12.37 for fiscal 2021 (ending June 2021), suggesting declines of 0.8% and 2.1% from the respective 60-day-ago figures.

Parker-Hannifin Corporation Price and Consensus


Parker-Hannifin Corporation Price and Consensus

Parker-Hannifin Corporation price-consensus-chart | Parker-Hannifin Corporation Quote

In the past three months, the company’s share price has increased 7.6% compared with 2.5% growth recorded by the industry.

Stocks That Warrant a Look

Some better-ranked stocks in the industry are Graham Corporation GHM, Chart Industries, Inc. GTLS and Dover Corporation DOV. While Graham currently sports a Zacks Rank #1 (Strong Buy), Chart Industries and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks improved for the current year. Further, earnings surprise for the last reported quarter was 100% for Graham, 11.48% for Chart Industries and 0.65% for Dover.

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