With a daily gain of 8% and a 3-month loss of 0.4%, Parker Hannifin Corp (PH, Financial) has been a subject of interest for many investors. The company's Earnings Per Share (EPS) stands at 16. But the question remains: is the stock fairly valued? This article aims to provide an extensive analysis of Parker Hannifin's valuation. So, let's dive in!
Company Introduction
Parker Hannifin Corp (PH, Financial) is a renowned industrial conglomerate with two main operational segments: diversified industrial and aerospace systems. The diversified industrial segment, which caters to various end markets, comprises six groups. These include engineered materials, filtration, fluid connectors, instrumentation, and motion systems. The company's vast network includes 17,100 independent distributors, with about 40% of its business happening outside the United States.
As of November 02, 2023, Parker Hannifin's stock price is $400.12, and its estimated fair value (GF Value) is $384.08. This comparison leads us to believe that the stock is fairly valued. But to confirm this, we need to delve deeper into the company's financials and operations.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, an internal adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock.
Parker Hannifin's stock seems to be fairly valued according to the GF Value. This estimation is based on historical multiples, past business growth, and forecasted business performance. If the stock price is significantly above the GF Value Line, it might be overvalued, leading to poor future returns. Conversely, if it is significantly below the GF Value Line, it might be undervalued, promising high future returns. Currently, with a market cap of $51.40 billion, Parker Hannifin's stock appears to be fairly valued.
As the stock is fairly valued, its long-term return is likely to align closely with its business growth rate.
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Financial Strength
Investing in companies with poor financial strength can increase the risk of permanent capital loss. Therefore, it's crucial to assess a company's financial strength before deciding to buy its stock. Parker Hannifin's cash-to-debt ratio of 0.04, which is lower than 95.94% of the companies in the Industrial Products industry, and its overall financial strength rank of 5 out of 10, indicate fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces risk for investors. Parker Hannifin has been profitable for 10 out of the past 10 years. With an operating margin of 16.56%, better than 85.42% of the companies in the Industrial Products industry, and a profitability rank of 9 out of 10, Parker Hannifin demonstrates strong profitability.
Growth is a critical factor in a company's valuation. Parker Hannifin's 3-year average annual revenue growth is 11.7%, ranking better than 64.94% of the companies in the Industrial Products industry. Its 3-year average EBITDA growth rate is 20.1%, better than 68.51% of the companies in the industry, indicating strong growth.
Another way to assess a company's profitability is by comparing its return on invested capital (ROIC) and the weighted average cost of capital (WACC). Parker Hannifin's ROIC of 9.74 is lower than its WACC of 10.41, indicating a need for improvement.
Conclusion
In conclusion, Parker Hannifin (PH, Financial) appears to be fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 68.51% of the companies in the Industrial Products industry. For more information about Parker Hannifin's stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
