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

On Apr 19, we issued an updated research report on Parker-Hannifin Corporation PH.

In the past month, this Zacks Rank #3 (Hold) stock has gained 3.3% compared with the industry’s growth of 6.1%.

Existing Business Scenario

Parker-Hannifin stands to benefit from its unique Win Strategy, improving product demand, growth-based investments and cost-control measures. For fiscal 2021 (ending June 2021), the company expects to generate year-over-year sales growth of 0.7-2.7% against a decline of 2-5% projected earlier.

Also, the company is poised to gain from the acquisitions it made over time. For instance, it has strengthened its business portfolio through the buyout of Exotic Metals Forming Company and LORD Corporation in fiscal 2020 (ended June 2020). For fiscal 2021, Parker-Hannifin expects acquisitions to have a positive impact of 2.9% on sales. Notably, synergistic benefits from the LORD buyout are expected to be $100 million in fiscal 2021.

Moreover, its solid cash position adds to its strength. For instance, in the first half of fiscal 2021, Parker-Hannifin’ cash flow from operations increased 63.9% on a year-over-year basis. Free cash flow in the first half was high at $1.3 billion, while free cash flow conversion was 164%. In addition, it remains committed to rewarding shareholders through dividend payouts. Notably, in the first half of fiscal 2021, the company distributed dividends totaling $227.2 million to its shareholders.

However, Parker-Hannifin’s realignment expenses have been adversely impacting its earnings over the past few quarters. In the first quarter (ended September 2020) and second quarter (ended December 2020) of fiscal 2021, business-realignment expenses hurt its adjusted earnings by 12 cents and 14 cents per share, respectively.

Moreover, its long-term debt in the last five fiscal years (2016-2020) increased 23.4% (CAGR). At the end of the second quarter of fiscal 2021, its long-term debt remained high at $6.6 billion. Any further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Chart Industries, Inc. GTLS, The Middleby Corporation MIDD and Kadant Inc. KAI. While Chart Industries currently sports a Zacks Rank #1 (Strong Buy), Middleby and Kadant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries delivered a positive earnings surprise of 30.80% on average, in the trailing four quarters.

Middleby delivered a positive earnings surprise of 22.98%, on average, in the trailing four quarters.

Kadant delivered a positive earnings surprise of 30.95%, on average, in the trailing four quarters.

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