Parker Hannifin (PH, Financial), a U.S. company that specializes in motion and control technologies, is suffering from what we believe are investor misunderstandings and misjudgments, despite the efforts of the company’s unusually strong management team. In our opinion, since his promotion in 2015, CEO Thomas Williams has vastly improved operations and shifted the product portfolio to longer cycled, higher growth, higher margin and higher return end markets. The results are impressive. Margins, returns and earnings have increased substantially. With the expected closing of the Meggitt acquisition in the September quarter, the highly depressed aerospace segment will be its largest end market. We anticipate a rebound in aerospace revenue, which—combined with the company’s strong position in attractive businesses, including clean technologies and factory automation—should accelerate revenue growth. Parker Hannifin trades at a discount to other high-quality industrials, which we believe is unwarranted since its growth and returns should be similar or better. At a low-teens multiple of next year’s normalized cash earnings, Parker Hannifin is an attractive investment, in our view.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund second-quarter 2022 commentary.
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