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Parker-Hannifin (PH) Exhibits Strong Prospects, Risks Persist

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Parker-Hannifin Corporation (PH - Free Report) stands to benefit from strength across its industrial end market and recovery in the commercial aerospace end market. In the quarters ahead, improving orders for products and its unique Win Strategy (version 3.0) are also likely to be beneficial. For fiscal 2022 (ending June 2022), the company anticipates sales to grow 6-9% on a year-over-year basis, higher than 4.8% rise recorded in fiscal 2021 (ended June 2021).

The company believes in strengthening its businesses through the addition of assets. The acquisition of Exotic Metals Forming Company and LORD Corporation in fiscal 2020 (ended June 2020) enabled Parker-Hannifin to strengthen its business portfolio. Also, it agreed to acquire Meggitt plc in August 2021. The buyout is likely to strengthen its motion & control technologies offerings in aerospace and defense end markets. Acquisitions boosted Parker-Hannifin’s sales by $394.1 million in fiscal 2021.

It focuses on rewarding shareholders through dividend payments and share repurchases. In the first three months of fiscal 2022, Parker-Hannifin used $132.9 million for paying out dividends. The quarterly dividend rate was hiked by 17% in April 2021. Also, it reinstated its share-buyback program in third-quarter fiscal 2021 (ended March 2021), which it expects to continue in fiscal 2022.

However, escalating costs and expenses has been a major concern for the company over time. In first-quarter fiscal 2022 (ended September 2022), its cost of sales increased 13.7% on a year-over-year basis. Its selling, general and administrative expenses rose 10.2%. For fiscal 2022, it expects corporate general & administrative, interest, and other expenses (on an adjusted basis) of $461 million.

Its high-debt profile poses a concern. Exiting first-quarter fiscal 2022, its long-term debt balance remained high at $6,263.9 million. Any further increase in debt levels can raise the company’s financial obligations.

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In the past six months, this Zacks Rank #3 (Hold) stock has gained 3% against the industry’s decline of 5.2%.

Key Picks

Some better-ranked stocks from the Zacks Industrial Products sector are Applied Industrial Technologies (AIT - Free Report) , AZZ Inc. (AZZ - Free Report) and Welbilt, Inc. (WBT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Industrial delivered an earnings surprise of 26.71% in the last reported quarter.

AZZ delivered an earnings surprise of 25.47% in the last reported quarter.

Welbilt delivered an earnings surprise of 172.50% in the last reported quarter.