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Parker-Hannifin to Buy CLARCOR, Expand Filtration Lineup
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Shares of Parker-Hannifin Corporation (PH - Free Report) rallied 3.3% at the close of trading on Dec 1, following the company’s most notable acquisition to date. Encouragingly, Parker-Hannifin has had a solid run on the bourse, returning over three times the Zacks-categorized Machinery-Gen industry average of 5.1% over the last three months.
The provider of motion and control technologies inked a definitive agreement to acquire air filtration systems provider – CLARCOR Inc. – for about $4.3 billion in cash, including net debt. Headquartered in Franklin, TN, CLARCOR’s market value was $3.4 billion on Wednesday and Parker-Hannifin’s cash offer of $83 a share represents a premium of 17.8% of Clarcor’s closing price on Wednesday.
The Transaction in Detail
The transaction is subject to customary closing conditions, including approval by CLARCOR's shareholders and other regulatory approvals. This deal is expected to be complete by or during the first quarter of Parker-Hannifin’s next fiscal year, which begins Jul 1, 2017. Also, this price reflects a premium of roughly 17.1% to CLARCOR’s all-time and 52-week high.
Financing of the transaction will be done by using a combination of $1.5 million in cash and $3 billion in new debt. The analyst camp is divided, with the cautious expecting this funding to mar Parker-Hannifin’s credit rating and the others remaining bullish.
Parker-Hannifin affirmed that it will be able to maintain its record of annual dividend increases, without jeopardizing its debt reduction priority in the near term.The company is bullish that it will have sufficient cash flow after the acquisition to reduce debt. In addition, no material impact is expected on its dividend payout target of 30% of net income.
Filtration Portfolio Boost
Marketer and manufacturer of mobile, industrial and environmental filtration products, CLARCOR has annual sales of $1.4 billion. The company is bringing a range of industrial air and liquid filtration products and technologies on the table, which will significantly bolster Parker-Hannifin’s filtration product suite. As a matter of fact, Parker-Hannifin and CLARCOR’s overlapping products and markets are expected to fortify the former’s foothold in key geographies.
Moreover, this acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Groupas 80% of CLARCOR’s revenue is generated through aftermarket sales. Leveraging on CLARCOR’s leading brands, including Baldwin, Fuel Manager, PECOFacet, Airguard and Altair, Parker-Hannifin believes that it will be able to expand its filtration solutions.
The company is bullish on the integration of CLARCOR with the filtration business which will help double sales at this unit and counter the ongoing softness in the mining as well as oil & gas markets. Parker-Hannifin has been grappling with these issues which have resulted in a precipitous decline in its revenues for the past few quarters. This is because most of CLARCOR’s products, including maintaining existing equipments are insulated from these downturns.
Financial Gains
Parker-Hannifin believes that this consolidation of the supply chains and a successful implementation of Win strategy will help it realize annual run rate cost synergies of approximately $140 million, over a span of three years after closing. Further, this acquisition is expected to generate sustained value for Parker-Hannifin’s shareholders, moving ahead. Post buyout, the company’s filtration business is projected to generate about 20% of total revenue.
Key financials of Parker-Hannifin, including cash flow, earnings per share and EBITDA margins, are likely to improve significantly right from the first year following the buyout, after adjusting for one-time costs. The high percentage of CLARCOR’s recurring sales in aftermarket is likely to prove conducive to Parker-Hannifin’s top quartile financial performance.
Acquisitions: A key Growth Strategy
Parker-Hannifin has been proactive in making acquisitions religiously to strengthen its core business. The company concluded major investments recently. During fiscal year 2016, the company acquired two of Germany-based equipment manufacturer Arnold Jäger Holding GmbH‘s operating units, Jäger Automobil-Technik GmbH and Jäger Automotive Polska Sp. z.o.o. The acquisition has reinforced the company’s position in the global sealing markets.
Also, the company purchased UK-based Company – President Engineering Group – which was later integrated with its Instrumentation Group business. Undoubtedly, it has been benefiting from such transactions. The latest CLARCOR acquisition is the company’s biggest to date and we believe that it will be a major catalyst for future growth.
Upward Trending Estimate Revisions
This Zacks Rank #3 (Hold) stock has a striking earnings surprise history, with an average surprise of 10.5% in the trailing four quarters, beating estimates all through. Parker-Hannifn has also been witnessing solid activity on the earnings estimate revision front. Analysts have become increasingly bullish on the company in the past couple of months, as the Zacks Consensus Estimate for fiscal 2017 earnings has trended up in the past two months, from $6.79 to $6.86, on the back of seven upward estimate revisions versus just one lower.
Applied Industrial Technologies has managed to beat estimates twice in the trailing four quarters and has a positive earnings surprise of 4.9%.
Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.
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Parker-Hannifin to Buy CLARCOR, Expand Filtration Lineup
Shares of Parker-Hannifin Corporation (PH - Free Report) rallied 3.3% at the close of trading on Dec 1, following the company’s most notable acquisition to date. Encouragingly, Parker-Hannifin has had a solid run on the bourse, returning over three times the Zacks-categorized Machinery-Gen industry average of 5.1% over the last three months.
The provider of motion and control technologies inked a definitive agreement to acquire air filtration systems provider – CLARCOR Inc. – for about $4.3 billion in cash, including net debt. Headquartered in Franklin, TN, CLARCOR’s market value was $3.4 billion on Wednesday and Parker-Hannifin’s cash offer of $83 a share represents a premium of 17.8% of Clarcor’s closing price on Wednesday.
The Transaction in Detail
The transaction is subject to customary closing conditions, including approval by CLARCOR's shareholders and other regulatory approvals. This deal is expected to be complete by or during the first quarter of Parker-Hannifin’s next fiscal year, which begins Jul 1, 2017. Also, this price reflects a premium of roughly 17.1% to CLARCOR’s all-time and 52-week high.
Financing of the transaction will be done by using a combination of $1.5 million in cash and $3 billion in new debt. The analyst camp is divided, with the cautious expecting this funding to mar Parker-Hannifin’s credit rating and the others remaining bullish.
Parker-Hannifin affirmed that it will be able to maintain its record of annual dividend increases, without jeopardizing its debt reduction priority in the near term.The company is bullish that it will have sufficient cash flow after the acquisition to reduce debt. In addition, no material impact is expected on its dividend payout target of 30% of net income.
Filtration Portfolio Boost
Marketer and manufacturer of mobile, industrial and environmental filtration products, CLARCOR has annual sales of $1.4 billion. The company is bringing a range of industrial air and liquid filtration products and technologies on the table, which will significantly bolster Parker-Hannifin’s filtration product suite. As a matter of fact, Parker-Hannifin and CLARCOR’s overlapping products and markets are expected to fortify the former’s foothold in key geographies.
Moreover, this acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Groupas 80% of CLARCOR’s revenue is generated through aftermarket sales. Leveraging on CLARCOR’s leading brands, including Baldwin, Fuel Manager, PECOFacet, Airguard and Altair, Parker-Hannifin believes that it will be able to expand its filtration solutions.
The company is bullish on the integration of CLARCOR with the filtration business which will help double sales at this unit and counter the ongoing softness in the mining as well as oil & gas markets. Parker-Hannifin has been grappling with these issues which have resulted in a precipitous decline in its revenues for the past few quarters. This is because most of CLARCOR’s products, including maintaining existing equipments are insulated from these downturns.
Financial Gains
Parker-Hannifin believes that this consolidation of the supply chains and a successful implementation of Win strategy will help it realize annual run rate cost synergies of approximately $140 million, over a span of three years after closing. Further, this acquisition is expected to generate sustained value for Parker-Hannifin’s shareholders, moving ahead. Post buyout, the company’s filtration business is projected to generate about 20% of total revenue.
Key financials of Parker-Hannifin, including cash flow, earnings per share and EBITDA margins, are likely to improve significantly right from the first year following the buyout, after adjusting for one-time costs. The high percentage of CLARCOR’s recurring sales in aftermarket is likely to prove conducive to Parker-Hannifin’s top quartile financial performance.
Acquisitions: A key Growth Strategy
Parker-Hannifin has been proactive in making acquisitions religiously to strengthen its core business. The company concluded major investments recently. During fiscal year 2016, the company acquired two of Germany-based equipment manufacturer Arnold Jäger Holding GmbH‘s operating units, Jäger Automobil-Technik GmbH and Jäger Automotive Polska Sp. z.o.o. The acquisition has reinforced the company’s position in the global sealing markets.
Also, the company purchased UK-based Company – President Engineering Group – which was later integrated with its Instrumentation Group business. Undoubtedly, it has been benefiting from such transactions. The latest CLARCOR acquisition is the company’s biggest to date and we believe that it will be a major catalyst for future growth.
Upward Trending Estimate Revisions
This Zacks Rank #3 (Hold) stock has a striking earnings surprise history, with an average surprise of 10.5% in the trailing four quarters, beating estimates all through. Parker-Hannifn has also been witnessing solid activity on the earnings estimate revision front. Analysts have become increasingly bullish on the company in the past couple of months, as the Zacks Consensus Estimate for fiscal 2017 earnings has trended up in the past two months, from $6.79 to $6.86, on the back of seven upward estimate revisions versus just one lower.
Stocks to Consider
Some better-ranked stocks in the broader sector include Applied Industrial Technologies Inc. (AIT - Free Report) and The Middleby Corporation (MIDD - Free Report) . Both companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Applied Industrial Technologies has managed to beat estimates twice in the trailing four quarters and has a positive earnings surprise of 4.9%.
Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>