Parker Hannifin's Portfolio Looks Strong as Ever and Backlogs Remain Healthy 

Equity Analyst

Spencer Liberman

Revenue segments as reported by the company.

Diversified North America

Diversified International

Aerospace Systems

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Parker Hannifin is a well-run diversified industrial conglomerate with exposure to a wide variety of end markets. Over time, we believe the firm can achieve its goals of outpacing industrial production and margin expansion on the heels of its newest Win Strategy and large acquisitions of Clarcor, Lord, Exotic Metals, and Meggitt. We believe part of Parker’s strength lies in its broad range of motion and control technologies with a wide variety of applications, including hydraulics and pneumatics, fluid and gas handling, and sealing. Parker says about 85% of the revenue from these technologies has intellectual property protection, which we believe helps cement its competitive position, given the long product lifecycles and low reinvestment needs of this business. Parker's acquisitions brought in technologies that filled major gaps in its existing portfolio, including in filtration, engineered materials, and vibration technologies. With these acquisitions, the firm gains an even stronger foothold in the highly attractive higher-margin aftermarket and doubles down on long-cycle businesses.

Win Strategy 3.0 is Parker's "secret sauce" that drives margin expansion and working capital improvements. Our thesis primarily relies on Parker's ability to successfully integrate its large-scale acquisitions and improve working capital in line with the company's historical core figures as well as margins through initiatives like design and product line simplification, productivity initiatives that improve inventory turns, improved supply chain sourcing, and other lean initiatives. We also expect that Parker's international business can still drive similar margins to the North American business with continuing strength in distribution.

These factors lead us to expect Parker to increase its top line by about a 5.5% organic compound annual growth rate over the next five years and expand non-GAAP adjusted segment operating margin (before acquisitions and corporate costs) by over 300 basis points from 2023 levels by 2028.

Business Strategy & Outlook

We believe Parker Hannifin merits a narrow economic moat rating based on switching costs and intangible assets. We think the total company benefits from a large installed base of products, which according to its annual report are supplied to "459,000 customers in virtually every manufacturing, transportation, and processing industry." 

Parker’s diversified industrial segment consists of sales of an assortment of various hydraulic, pneumatic, and electromechanical components, including valves, actuators, and pumps, as well as filters, hoses, and seals. In addition to Parker’s field sales employees, the diversified industrial segment’s approximately 17,100 independent distributor locations throughout the world—the blade in Parker’s razor-and-blade model—heavily support Parker’s installed base. Parker has curated this distribution network over 60 years. Based on Parker’s past comments, we estimate that the 10-point-higher-margin aftermarket distribution business typically represents about half of Parker’s industrial business through an economic cycle, which we believe evidences switching costs. We calculate that this segment has historically earned return on invested capital including goodwill of approximately 14% through the cycle.

Parker’s distributors help the company reach its various end markets with their highly technical level of expertise, with some customer relationships lasting for years. Less available skilled labor that can appropriately address the specific and ongoing equipment service requirements of Parker’s customers only serves to reinforce these switching costs, in our view. It is difficult for customers to find other qualified maintenance technicians, given the highly specialized nature of Parker's equipment. Other factors that reinforce switching costs include the mission-critical, complicated, and long-lead-time nature of Parker’s equipment, specifically in aerospace, automotive, and other transportation applications. 

A high cost of failure in some of Parker’s end markets could translate to thousands of dollars per minute of downtime if an offshore seal fails in the oil and gas industry, at best. At worst, seal failure could lead to loss of lives in the aerospace industry, for example. While a sealing solution isn’t the largest item on a bill of materials, customers tend to heavily rely on injection molders for technical expertise. While Parker's products are a small part of a customer's total project costs, they are vitally important to its success. Parker’s sealing solutions are highly engineered products based on proprietary materials and are designed to keep tight tolerance and resist higher temperatures. Parker’s tight tolerance expertise must confront several factors, including part design and complexity, material selection, tooling, and process design and control. 

Designing a part is the most important factor in controlling tight tolerance. Part walls can have differential shrink rates based on the thickness of different sections. Alternatively, if a part has larger dimensions, it can make it more challenging to control and maintain tight tolerance. Sealing solutions must also withstand various temperature ranges, such as extreme heat and corrosion commonly associated with aircrafts taking off and landing, or extreme pressure from deep seawater conditions. Parker's design precision specifically leads to asset optimization, but it can also lower a company's total cost of ownership. Additionally, customers using non-Parker parts in any piece of equipment purchased from a distributor without the express permission of the company voids that equipment's warranty.

A high degree of content on a specific platform reinforces switching costs. Parker’s broad aerospace portfolio, for example, includes flight control actuation, fuel pumps and valves, hydraulic equipment for commercial airframe manufacturers on programs like the Airbus A350, Boeing 777x, and Boeing 787; military programs like the F-35; and engine components like on CFM’s Leap engine, General Electric’s GEnx engine, and Rolls-Royce’s Trent engine programs (specifically, the XWB, the 1000, and the 7000). For aerospace, we estimate returns on invested capital including goodwill have historically averaged about 22% through the cycle. Nevertheless, we think the aerospace segment merits a narrow moat instead of wide, given the bargaining power of airframe manufacturers like Boeing and Airbus and their ability to pressure price from their supply chain, as well as comparably less intellectual property protection in just under half of the segment’s portfolio. 

Parker also benefits from intangible assets. Aside from technical expertise and highly engineered products backed by intellectual property like patents, intangibles include a broad breadth of technology with long product lifecycles and low investment requirements, as well as a long record of success. Over 60% of Parker’s revenue goes through customers that buy from four or more of Parker’s technological core competencies, including in hydraulics, pneumatics, electromechanical, filtration, fluid and gas handling, process control, climate control, and sealing and shielding. Furthermore, according to Parker representatives, the firm holds a number-one or -two share in many of the industrial markets it serves. The acquisition of Clarcor in 2017 not only strengthened Parker’s competitive position in the filtration aftermarket with its favorable 80% revenue exposure, but it also shored up its technology offering in the filter and industrial HVAC markets. 

We can glean examples of Parker’s technology in its product portfolio. Sensors are generally critical when assessing systems that use fluids (water, oil, or gas) to either generate power or transfer liquids or gas from one point to another. Factors like pressure, temperature, humidity, and vibration are critical in these systems when it comes to producing quality. Variations in pressure materially hamper production while extreme temperatures can lead to undesirable results. The large quantity of data collected by sensors is itself proprietary, since Parker can convert that data into algorithms that identify defective equipment and can trigger corrective action before catastrophe strikes. Aside from predictive maintenance benefits, sensors also obviate the need for manual reading of equipment. Industry journals citing the U.S. Department of Energy state that minimizing downtime has been shown to increase production by as much as 25% while increasing asset availability by 30%.

Taking a specific example, trade journals highlight wireless vibration sensors. Wireless sensors can used in a manufacturing process (like power plants, food and beverage packaging facilities, or paper and metal manufacturing facilities, among others) and configured to transmit data, set alarm thresholds, and create product notifications. The design, moreover, allows for low-cost, easy installation. Other products like Parker’s hand-held meters provide portable maintenance and diagnostic data for hydraulics and pneumatics, and automatic sensor recognitions eliminate the setup time that can be both confusing and time-consuming for operators. Solutions like these are especially valuable in hazardous environments, since they allow the user to keep a safe distance from dangerous areas. 

In the electro-pneumatic space, Parker Hannifin has introduced a range of pressure regulators that provide precise control and energy savings in railcar applications but are also built to withstand extreme temperatures up to negative 40 degrees Celsius, which extends its useful life. Other pneumatic applications, such as air saver units found in factor air nozzles and air gun applications, cut compressed air costs by 40%-50%. Technology leading to cost savings matters because compressed air systems require huge expenditures of energy and costs that are often overlooked when calculating a plant’s cost of production. Industry trade journals citing the U.S. Department of Energy state that the cost of air ranges from 16 cents to 30 cents per 1000 cubic feet. Yet, only 12.5 cents of every dollar spent on electricity to generate compressed air is doing useful work.

In filtration, Parker’s top-loading compressed air filters, which are designed to protect internal components of a refrigerated dryer, can remove up to 99% of solid and liquid contaminants, which allows for easier replacement. These filters were previously awarded a product of the year award by Plant Engineering. In flow meters, which are within the fluid control division and monitor the flow of cooling fluid used in welding, pump seal water, or boiler feed water applications, Parker’s meters feature no moving parts to clog or wear out, which contribute to a long product cycle, but are also designed to monitor particulates with a high amount of accuracy and permits occasional overranging up to 125% of capacity without damaging the meter. 

Parker Hannifin’s returns on invested capital, including goodwill, have safely exceeded our estimated weighted average cost of capital of 8.1%, at an average of nearly 14% over the past 10 years. Ultimately, we believe it is more likely than not Parker can continue this normalized level of performance over the next 10 years.

Narrow

Economic Moat

Parker-Hannifin

Parker-Hannifin Corp. engages in the manufacture of motion and control technologies and systems. It operates through Diversified Industrial and Aerospace Systems segments. The Diversified Industrial segment sells products to both original equipment manufacturers and distributors who serve the replacement markets in manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural and military machinery, and equipment industries. The Aerospace Systems segment offers products primarily in the commercial and military aerospace markets to both OEMs and to end users for spares, maintenance, repair, and overhaul. The company was founded by Arthur L. Parker in 1918 and is headquartered in Cleveland, OH.

Earnings data Q1 2024

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Here's Why Parker-Hannifin (PH) is a Strong Growth Stock

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Parker-Hannifin (PH) might move higher on growing optimism about its earnings prospects, which is reflected by its upgrade to a Zacks Rank #2 (Buy).

What Makes Parker-Hannifin (PH) a New Buy Stock

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CLEVELAND, Nov. 03, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that it is scheduled to present at the Robert W. Baird Global Industrial Conference in Chicago, Illinois on November 7, 2023 at 11:25 a.m. Central time (12:25 a.m. Eastern time).

Parker Scheduled to Present at Robert W. Baird Global Industrial Conference on November 7 at 11:25 a.m.

Parker-Hannifin's (PH) fiscal first-quarter results reflect benefits from the Meggitt acquisition and operational improvement.

Parker-Hannifin (PH) Q1 Earnings Beat, Revenues Up 14.5% Y/Y

The headline numbers for Parker-Hannifin (PH) give insight into how the company performed in the quarter ended September 2023, but it may be worthwhile to compare some of its key metrics to Wall Street estimates and the year-ago actuals.

Parker-Hannifin (PH) Reports Q1 Earnings: What Key Metrics Have to Say

CLEVELAND, Nov. 02, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2024 first quarter ended September 30, 2023. Sales were a record at $4.8 billion, an increase of 15%, compared with $4.2 billion in the first quarter of fiscal 2023. Net income was $650.8 million compared with $387.9 million in the prior year quarter. Adjusted net income was $776.4 million, an increase of 26% compared with $615.5 million in the first quarter of fiscal 2023. Earnings per share were $4.99 compared with $2.98 in the first quarter of fiscal 2023. Adjusted earnings per share increased 26% to $5.96 compared with $4.74 in the prior year quarter. Fiscal 2024 year-to-date cash flow from operations was $650.0 million, or 13.4% of sales compared with $457.4 million, or 10.8% of sales, in the prior year. A reconciliation of non-GAAP measures is included in the financial tables of this press release.

Parker Reports Fiscal 2024 First Quarter Results

CLEVELAND, Oct. 30, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that William R. “Skip” Bowman, Vice President and President – Fluid Connectors Group, and Roger S. Sherrard, Vice President and President – Aerospace Group, will retire on December 31, 2023, after 40 and 34 years of service to the company, respectively.

Parker Announces Leadership Changes for Key Operating Groups

Parker-Hannifin (PH) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Parker-Hannifin (PH) Earnings Expected to Grow: What to Know Ahead of Next Week's Release

CLEVELAND, Oct. 25, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that its Board of Directors has declared a regular quarterly cash dividend of $1.48 per share of common stock to shareholders of record as of November 13, 2023. The dividend is payable December 1, 2023.

Parker Declares Quarterly Cash Dividend

While steady demand across end markets is expected to aid Parker-Hannifin's (PH) Q1 results, the escalating cost of sales may affect earnings.

Will Cost Headwinds Mar Parker-Hannifin's (PH) Q1 Earnings?

CLEVELAND, Oct. 25, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that Lee C. Banks, Vice Chairman and President and a Director, will retire on December 31, 2023, after 32 years of dedicated service to the company. Andrew D. Ross, currently Chief Operating Officer, has been elected by the Board of Directors as President and Chief Operating Officer, effective January 1, 2024.

Parker Announces Retirement of Vice Chairman and President Lee C. Banks and Election of Chief Operating Officer Andrew D.

CLEVELAND, Oct. 25, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that its Board of Directors has elected Jennifer A. Parmentier, currently Chief Executive Officer and a Director, as Chairman of the Board, effective January 1, 2024. Ms. Parmentier will succeed Thomas L. Williams, Executive Chairman, who will retire on December 31, 2023, as previously announced.

Parker Announces Retirement of Executive Chairman Thomas L. Williams and Election of Jennifer A.

CLEVELAND, Oct. 23, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that it will release its fiscal 2024 first quarter earnings before the market opens on Thursday, November 2, 2023, followed by a conference call at 11:00 a.m., Eastern time. During the call, the company will discuss fiscal 2024 first quarter results and respond to questions from institutional investors and security analysts. The conference call will be webcast simultaneously on Parker's investor information website at  www.phstock.com  with an accompanying slide presentation. The webcast will be archived on the site and available for replay later that day.

Parker to Announce Fiscal 2024 First Quarter Earnings on November 2; Conference Call and Webcast Scheduled for 11 a.m. Eastern

Why Parker-Hannifin (PH) is a Top Growth Stock for the Long-Term

Parker-Hannifin is a well-positioned stock that may benefit from rising production costs in the renewable energy sector. The company's business model combines sound margins, high entry barriers, and promising growth prospects in various industries.

Parker-Hannifin's True Value Unmasked Through A DCF Perspective

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CLEVELAND, Oct. 18, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that it will webcast its Annual Meeting of Shareholders, which is scheduled for Wednesday, October 25, 2023, at 9:00 a.m., Eastern time. The webcast will be accessible on Parker's investor information website at  www.phstock.com  and will be archived on the site for one year.

Parker to Webcast Annual Meeting of Shareholders on October 25 at 9:00 a.m. Eastern

Parker-Hannifin (PH) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

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Parker-Hannifin (PH) benefits from increased productivity and supply-chain improvement in the North American region, and cost-control measures. Its shareholder-friendly policies are promising.

Here's Why Investors Should Retain Parker-Hannifin (PH) Stock

CLEVELAND, Sept. 06, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced that it is scheduled to present at the Morgan Stanley Annual Laguna Conference in Dana Point, California on September 13, 2023 at 9:55 a.m. Pacific time (12:55 p.m. Eastern time).

Parker Scheduled to Present at the Morgan Stanley Annual Laguna Conference on September 13 at 9:55 a.m. Pacific Time (12:55 p.m.

CLEVELAND, Sept. 05, 2023 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced the election of Denise Russell Fleming to its Board of Directors, effective September 1, 2023.

News for Parker-Hannifin Stock (PH)