About Parker-Hannifin
A lot of people like to refer to one of the more iconic quotes from arguably one of the most prolific films ever, “The Wizard of Oz.”
The particular quote I am referring to is when Dorothy said “Lions, Tigers and Bears, oh my!”
If Parker-Hannifin had its own movie, perhaps with a sort of Wizard of Oz-like theme, it would probably read something like “motion control technologies, pneumatic, hydraulics, process control, general filtration, fluid and gas handling and other industrial, mission critical solutions.”
“Oh my!”
Suffice it to say Parker-Hannifin has a lot on its corporate plate and through its variety of operations, plays many important roles in many important industries all across the globe, whether you know it or not.
For a little more context, Parker is largely in the business of manufacturing and selling motion and sensor-related technologies and some other supplemental products spread across a broad array of categories and industries.
For instance, Parker-Hannifin has a rather deep presence within the aerospace sector, with a wide variety of products such as fittings, couplings, actuators, fuel nozzles, hose, piping and tubing equipment, tanks and reservoirs, flow control sensors and many, many other products it sells in this one single category.
At its heart, Parker-Hannifin can be best summed up (in our opinion, at least) as a diversified (yet focused) industrial supplier that provides specialized, sometimes rather complex engineered equipment that keeps the world moving on a daily basis.
Trust us, you don’t want to imagine a world without a Parker-Hannifin in it.
In addition to its prowess in aerospace, it is also worth briefly noting that the Cleveland, Ohio-headquartered company supplies key components within the semiconductor sector, life sciences space(s), HVAC and refrigeration realms as well as in the chemical processing, off-road machinery and renewable energy arenas.
This speaks largely to the overall recessionary proof nature of Parker and its business overall, which we view as certainly being an initial positive, as we imagine many of the company’s products might actually be strongly suggested or even in some instances federally mandated in order for the companies it supplies to get their work done in an efficient and safe manner.
Sensors and supplemental products is the game and Parker-Hannifin is the name and now seems like a splendid time to delve into this company’s core financials and other pertinent ratios and metrics so as to arrive at a conclusion of whether or not its stock (NYSE: PH) is worth strongly considering as a long-term investment for one’s investment portfolio.
Parker’s stock financials
Trading near all-time highs, Parker-Hannifin’s share price (NYSE: PH) is specifically trading at $397.65 while accompanied by a market capitalization of $51.02 billion, a price-to-earnings (P/E) ratio of 34.86 all while issuing an annual dividend of $5.92.
With this initial, helpful information, it can be inferred that Parker’s present share price is a bit overvalued at the moment, deducted not merely from the fact that company’s stock is trading at the highest level it has ever traded, but also incorporating its rather elevated price-to-earnings ratio, at least as it stands compared to the commonly held fair value benchmark of 20, with Parker-Hannifin’s P/E ratio standing a few notches above, indicating that its shares are objectively overvalued at the time of this writing.
Additionally, Parker shells out a pretty swell annual dividend to its shareholder base, nearly $6 per annum and yielding 1.54% at the moment, which is no small offering from this company and its board of directors.
Speaking of the company’s executives, specifically in terms of the balance sheet they manage, they are in charge of just about $25.9 billion in terms of total assets as well as just north of $17 billion in terms of total liabilities, which, to us, is a great general balance sheet structure for a seasoned company such as Parker as its total assets outweigh the amount of its total liabilities by a more than comfortable margin, allowing this company to employ some debt financing in order to fund new projects and initiatives as well as engage in meaningful mergers and acquisitions (M&A) activity as the company continues expanding its corporate footprint.
With respect to the company’s income statement, Parker’s total annual revenues since 2018 have done little to no ebbing and flowing and have stayed at around $14 billion each year, which displays the fact that there is a fair amount of consistency within this company and its business(es) and that it is also doing a fine job in retaining its current clients and other business partners, through the thick and through the thin of COVID-19, omnipresent supply chain-related challenges, not to mention inflationary pressures as well.
Onto the state of the company’s cash flow statement, Parker-Hannifin’s net income and total cash from operations (also since 2018) have been both spectacularly consistent and positive as well, nudging us to think that it is engaged in quite a cash flow generative line of work.
Parker’s stock fundamentals
Speaking of the company’s ability to produce substantial cash flows, TD Ameritrade’s platform has Parker’s trailing twelve month (TTM) net profit margin listed and displayed as being 8.28% to the industry’s respective average of 3.22%, which likely just happens to be a direct byproduct of being an unequivocal leader in the industrial motion and sensor sectors.
Still, it is encouraging to find that the company’s TTM net profit margin is over double that of the industry’s average.
Additionally, it can also be found that Parker’s TTM returns on both assets and investments have also remained competitive for the most part.
For example, the company’s listed TTM return on investment(s) stand at 7.19% to the industry’s respective not all that distant average of 6.25%.
Should you buy Parker stock?
We thoroughly enjoy the fact that Parker-Hannifin concentrates its business operations in a host of largely recession proof sectors and industries that more than likely need or have grown to long for the products and services and precision within Parker’s wheelhouse.
As a slightly obscure reason we like this company, we have hardly ever heard of Parker-Hannifin outside of this stock analysis, as it seems to be a big, important global company that is good at keeping its head low with respect to media attention and focused on engineering excellence and continuous innovation.
We think the company’s relatively low profile might be one of the reasons it (and its share price) has performed so well in recent years and since its founding a little over a century ago, in 1917.
Nevertheless, with all of the positives within this company’s initial, core financials such as its stellar balance sheet, its consistent aggregate annual revenues and cash flows and its outsized TTM net profit margin and return on investment(s), shares of this company’s stock (NYSE: PH) are still a little too rich for our blood at the moment and for a company that is so consistent and not growing much (which is ok given its current leadership position), we don’t think it would be prudent to overpay for an ownership stake in this company, even though it is a quality one.
Putting all of this information together, it seems like the best decision is to give this company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.