Parker Hannifin Holds Investor Meeting, Provides Long-Term Targets

Parker Hannifin Corporation (NYSE: PH) hosted an Investor Meeting (virtual) in the presence of its top officials on Tuesday. The company talked about the strengths of its businesses, growth opportunities, and long-term projections.

Shares of this $34.9-billion company decreased slightly, by 0.1%, on Tuesday, closing the session at $271.62.

Parker Hannifin has expertise in manufacturing motion and control systems and technologies. Its solutions, related to climate control, hydraulics, filtration, process control, and others, are sold in aerospace, mobile, and industrial end markets. It is headquartered in Cleveland, OH.

Growth Prospects & Long-Term Targets

Parker Hannifin communicated that its solid offerings, experienced workforce, and effective business system are strengthening its growth prospects. Its portfolio transformation initiatives, directed at increasing aerospace and filtration & engineered materials businesses, are adding to its competitive strength. Combined revenues from these two businesses are expected to be $10 billion in the Fiscal Year 2022 (ending June 30, 2022) versus $7 billion in the Fiscal Year 2019.

Also, the company noted that enhancing customer experience, product quality with innovation, strategic supply chain, effective pricing actions, digitization, and focus on health, safety, and environment are among its primary goals. Market presence through organic and inorganic means has been aiding the company over time. Among its notable acquisitions are CLARCOR (closed in the Fiscal Year 2017), LORD and Exotic Metal (closed in the Fiscal Year 2020), and Meggitt (to close in the third quarter of Calendar Year 2022).

In the long-term, the company sees solid growth opportunities in aerospace & defense, industrial aftermarket, agriculture, construction, and mining markets. It predicts new products launches to account for 25% of its annual revenues in the Fiscal Year 2027 (ending June 2027), compared with 20% in the present year.

Organic sales growth is predicted to be 4%-6% in the Fiscal Year 2027, and adjusted earnings per share are likely to grow >10% (CAGR) to $30. Adjusted segment operating margin is expected to be 25%, while free cash flow margin is predicted to be greater than $3.5 billion in the Fiscal Year 2027. Adjusted earnings before interest, tax, depreciation, and amortization margin is likely to be 25%.

The average dividend payout is targeted to be within the 30%-35% range and dividend per share to be >$8. Capital expenditures are expected to be $450 million, accounting for 2% of total sales.        

Management’s Comments

Parker Hannifin’s Chairman and CEO, Tom Williams, said, “The actions we are taking are building a stronger, more sustainable company. While we have delivered outstanding performance and reached our previously announced five-year targets early, our new targets indicate we have many more opportunities to improve. We have a very promising future ahead as we take Parker’s performance to the next level and drive significant shareholder value.”

Snapshot of Projections for Fiscal Year 2022

In February, Parker Hannifin updated its projections for the Fiscal Year 2022.

Adjusted earnings per share are predicted to be within the $17.80-$18.30 per share range and organic sales are expected to grow 10%-12% year-over-year. These are higher compared with the earlier projections of $16.95-$17.65 per share for adjusted earnings and 7%-10% for organic sales growth.

Wall Street’s Take

Recently, Stephen Volkmann, an analyst at Jefferies, maintained a Buy rating on Parker Hannifin and lowered the price target to $350 (28.86% upside potential) from $380.

The Street is unanimously optimistic on Parker Hannifin and has a Strong Buy consensus rating based on 6 Buys and 2 Holds. The average Parker Hannifin price target of $383.25 suggests 41.1% upside potential from current levels. Over the past year, shares of Parker Hannifin have lost 7%.

Investors’ Sentiment

Per TipRanks’ Stock Investors tool, investors currently have a Very Positive stance on Parker Hannifin. In the past 30 days, there has been an increase of 7.3% in the number of portfolios having exposure to the PH stock.

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