Parker-Hannifin Corporation PH has been benefiting from steady demand across its end markets. Handsome rewards to shareholders add to its appeal.
PH currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 47.3% in the past year compared with the industry’s 22.5% growth.
Image Source: Zacks Investment Research
Let us discuss the factors that should influence investors to retain the stock for the time being.
Growth Catalysts
Business Strength: Steady demand across end markets and higher orders are supporting the Aerospace Systems segment. The segment is benefiting from strong momentum in commercial and military end markets across both OEM and aftermarket channels. In the quarters ahead, the segment is poised to gain from strong demand for its products and aftermarket support services in the general aviation market, driven by growth in air transport activities. Strength in its defense end market, owing to stable U.S. and international defense spending volumes, is also likely to be beneficial.
Expansion Efforts: The company solidifies its product portfolio and leverages business opportunities through asset additions. It is worth noting that acquisitions boosted its sales by 2.6% in fiscal 2024. In September 2022, the company completed the acquisition of Meggitt plc, a global leader in motion and control technologies. The acquisition expanded Parker-Hannifin’s presence in the United Kingdom, positioning it well to provide a broader suite of solutions for aircraft and aero-engine components and systems. The company reduced debt by approximately $2.6 billion since the closure of this acquisition.
Secular Growth Trends: Parker-Hannifin has doubled its portfolio of aerospace, filtration and engineered materials in the past eight years. Also, it is strategically shifting toward longer-cycle products (to attain stable and predictable revenue streams) supported by secular growth trends, which is improving its revenue mix. The growth drivers, i.e., the Win strategy, macro-CapEx reinvestment (strategy of reinvesting capital expenditures into a company's operations, assets and growth initiatives), acquisitions and secular growth trends are likely to help Parker-Hannifin achieve 4-6% revenue growth by fiscal 2029.
The company also expects earnings per share to witness a CAGR of more than 10% and is set to achieve a 27% adjusted segment operating margin by fiscal 2029. It is worth noting that Parker-Hannifin reported an adjusted segment operating margin of 24.9% in fiscal 2024, up 200 bps from the year-ago reported number.
Rewards to Shareholders: The company is committed to rewarding its shareholders through dividends. In April 2024, it hiked its dividend by 10% to $1.63 per share (annually: $6.52). In fiscal 2024, Parker-Hannifin paid out cash dividends of $782 million, up 11.1% year over year. In fiscal 2023, it rewarded its shareholders with dividends of $704.1 million, up 23.6% year over year.
A Few Negatives
Segmental Weakness: The company is witnessing weakness across the Diversified Industrial segment. Challenging conditions in the off-highway end market, due to softness in construction and agricultural sectors, have been affecting the North America and international businesses of the segment. Weakness in the transportation end market, arising from lower demand for automotive cars and light trucks, is ailing the North America business. Continued destocking also affected the segment’s performance in the fiscal fourth quarter. The segment’s sales decreased 4.1% in the fiscal fourth quarter on a year-over-year basis.
Forex Woes: Parker-Hannifin intends to boost its revenues and profitability through overseas business expansion. However, this exposes the company's financial performance to various political and environmental risks as well as foreign currency exchange rate fluctuations. In the fiscal fourth quarter, foreign currency translation lowered sales by approximately 1%. Foreign currency headwinds may affect top line in the quarters ahead.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation FLS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company CR presently has a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 1.6%.
Ferguson Enterprises Inc. FERG currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has been unchanged.
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Flowserve Corporation (FLS) : Free Stock Analysis Report
Crane Company (CR) : Free Stock Analysis Report
Ferguson plc (FERG) : Free Stock Analysis Report
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