Parker-Hannifin (PH) is so tempting right now, I worry that it’s a trap. Management has gone to great lengths to make Parker a less cyclical, less-correlated-to-IP company, but the Street seems to be responding with “yeah, that’s nice … but the manufacturing PMI is above 60, so no thanks.” While names like ABB (ABB), Eaton (ETN), Rockwell (ROK), and Trane (TT) march merrily higher on popular long-term secular growth themes, Parker seems stuck in that “it’s short-cycle, so don’t bother” malaise.
I’m not currently including Meggitt (OTCPK:MEGGY) in my estimates, and I’m looking for Parker to generate long-term revenue growth of around 4% and long-term FCF growth of around 6% to 7%. With that, I see a high single-digit return well ahead of what most other industrials offer, and if Parker where to be treated like “any other industrial” right now, you could argue for a fair value above $350.
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