Parker-Hannifin Gains From Acquisitions Amid Pandemic Scare

On Oct 12, we issued an updated research report on Parker-Hannifin Corporation PH.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 23.9% compared with the industry’s growth of 17.8%.

Present Scenario

Parker-Hannifin has been benefiting from strength across its end markets including military, material handling, mining, telecommunications and refrigeration end-markets. Also, the company’s unique Win Strategy has been supporting its revenue growth. Moreover, several cost-control measures implemented by it, including the reduction of discretionary expenses, salary and capital expenditure will help it maintain a healthy margin performance amid the coronavirus-led crisis.

Also, Parker-Hannifin’s acquisition of Exotic Metals Forming Company (September 2019) strengthened its aerospace products and solutions. In addition, the buyout of LORD Corporation (October 2019) has been enhancing its engineered materials’ product and solutions offerings. Notably, buyouts had a positive contribution of 9.3% and 8.1% to its sales in third quarter (ended March 2020) and fourth quarter (ended June 2020) of fiscal 2020. For fiscal 2021 (ending June 2021), the company anticipates acquisitions to have a positive impact of 2.7% on sales.

In addition, it remains committed to rewarding shareholders handsomely through dividend payments. In fiscal 2020, Parker-Hannifin used $453.8 million for paying out dividends, an increase of 10% on a year-over-year basis. Notably, the quarterly dividend rate was hiked 16% in April 2019.

However, weakness across its end markets like construction, machine tools, rail and oil and gas amid the coronavirus outbreak-led issues weighs on its top-line performance in the near term. For fiscal 2021, the company expects overall sales to decline 6.7-10.7% on a year-over-year basis.

Moreover, Parker-Hannifin’s high-debt profile poses a concern. In the last five fiscal years (2016-2020), its long-term debt rose 23.4% (CAGR). Notably, the metric was $7,652.3 million at the end of fiscal 2020. Also, the company’s ability of repay the financial obligations weakened in the quarter, with times interest earned declining from 6.8 in the fiscal third quarter of 2020 to 5.9 in the fiscal fourth quarter.

Key Picks

Some better-ranked companies from the same space are EnPro Industries, Inc. NPO, Colfax Corporation CFX and Flowserve Corporation FLS. While EnPro currently sports a Zacks Rank #1 (Strong Buy), Colfax and Flowserve carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EnPro delivered a positive earnings surprise of 248.29%, on average, in the trailing four quarters.

Colfax delivered a positive earnings surprise of 17.58%, on average, in the trailing four quarters.

Flowserve delivered a positive earnings surprise of 10.22%, on average, in the trailing four quarters.

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