Parker Hannifin Makes Its Case For Fundamental Change

 

One of the topics I’ve mentioned relatively frequently in talking about Parker-Hannifin Corp. (NYSE:PH) is the growing dichotomy between the market’s ongoing perception of this company as a classic short-cycle industrial and the reality of the company’s transformation toward an a-cyclical (or at least less cyclical) compounder that creates value across cycle. Management went to some lengths to reiterate that case at its recent Investor Day, and it’s an argument I think is worth listening to.

I was very tempted to buy into Parker Hannifin shares last August, and while I have missed the recent rebound from the low $270’s, I think there’s still credible long-term value here. I’m not completely with the bulls who think this is a brand new Parker Hannifin, and I think the company still lacks “flashy” exposure to attractive secular growth markets, but I think there is a lot more to this story than just short-cycle industrial exposure.

 

Click the link to continue reading: 

Parker Hannifin Makes Its Case For Fundamental Change

Parker-Hannifin Looks So Tempting Today

 

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.

 

Read the full article here: 

Parker-Hannifin Looks So Tempting Today

Parker Hannifin Poised For Better Performance On The Other Side Of COVID-19

I thought Parker Hannifin (PH) was priced for near-perfection before the Covid-19 crisis hit, and in a decidedly not-perfect new operating environment, Parker Hannifin shares have been hit a little harder than the average of its peer group. While some of the company’s end-markets will likely need more time to get back to 2019 levels, I think Parker Hannifin’s short-cycle exposure will be a very positive differentiator as the recovery begins later in 2020, and I’m also impressed with the company’s short-term margin performance.

I can’t really fault Parker management for their recent strategic decisions; the timing on their move toward a bigger presence in aerospace turned out to be unfortunate, but who had “global pandemic that crushes air travel” on their 2020 prediction list? Parker will probably always be a cyclical short-cycle industrial, but the quality of the business has improved meaningfully, and I think the shares still look pretty attractive here.

Click here to continue:
Parker Hannifin Poised For Better Performance On The Other Side Of COVID-19

Parker Hannifin Is Less Cyclical Than Before, But The Valuation Leaves No Room For Error

Credit where due -- not only has Parker Hannifin (PH) management used M&A to diversify the company, but they have also reduced the cyclical margin sensitivity of the legacy business. That’s no easy feat, and it’s certainly worth something, but Parker Hannifin shares continue to trade out of sync with economic indicators and at a valuation that leaves no room for stumbles.

Click here for more:
Parker Hannifin Is Less Cyclical Than Before, But The Valuation Leaves No Room For Error

Parker Hannifin Lowers Guidance, But Investors Assuming The Worst Is Already In Sight

As is the case with many industrials now, the Street seems to have quickly shifted to a view that the worst of this downturn is in sight for Parker Hannifin (PH). The shares are far closer to the 52-week high than the low, and have rebounded more than 10% from a pre-earnings dip in September, despite a significant revision to FY 2020 earnings expectations with the fiscal first quarter earnings report.

Industrials have done well as a group over the last three months, with Parker on the high end of the curve at nearly 20% Emerson (EMR) is one of the few that have done better). That outperformance is more than I expected, particularly in the context of management’s guidance, but the Street wants to believe in a 2020 industrial rebound story and doesn’t want to miss out. I like the steps Parker has taken to shift the business toward less-cyclical, higher-margin segments, but the expected return at today’s share price isn’t that special relative to what investors could expect from the likes of Dover (DOV), Honeywell (HON), and Rockwell (ROK) as industrial recovery stories.

Read more here:
Parker Hannifin Lowers Guidance, But Investors Assuming The Worst Is Already In Sight

Parker Hannifin Trying To Make Its Case For A Less Cyclical Future

I thought Parker-Hannifin (PH) had some appeal on a relative basis back in May, and while the share price performance since then hasn’t been spectacular, the shares have indeed outperformed the industrial peer group. Since that article, a few things have become clear – there’s definitely a short-cycle industrial slowdown, and Parker-Hannifin is looking to large inorganic investments in aerospace to create a less cyclical business mix.

Parker-Hannifin is more of a “show me” stock now in my opinion; management talks a good game about outgrowing peers on an organic basis and improving margins, but the company’s historical track record isn’t particularly strong. Moreover, I think management’s guide for the second half of its fiscal year 2020 (the first half of calendar 2020) could prove too optimistic. The valuation isn’t bad, and I think this is a good business, but it’s tough for me to work up much enthusiasm for a definitive buy/avoid call.

Click here to continue:
Parker Hannifin Trying To Make Its Case For A Less Cyclical Future

Parker-Hannifin Not Quite Paused, But Growth Has Slowed

Parker-Hannifin's (PH) fiscal third quarter (calendar first quarter) earnings reflected a lot of my concerns about slowing short-cycle markets, with management noting weakness in "general industrial", machine tool, autos, upstream oil & gas, power gen, and semis - something I've been outlining for a little while now. What's more, with destocking continuing through the June quarter and the possibility for an intensified tariff trade war with China looming, I'm still concerned that the short-cycle markets could decelerate further, even though Parker-Hannifin reported some improvement in orders in April.

I thought Parker-Hannifin shares offered some interesting upside when I last wrote about them if at the cost of some elevated short-term risk. The shares have outperformed the broader industrial space a bit since then, and my feelings about the stock remain more or less the same - this is one of the relatively rare reasonably-priced (if not slightly undervalued) quality industrials, and although I do think there's economic cycle risk over the next 12-24 months, I think this is a solid name for long-term ownership.

Follow this link to continue:
Parker-Hannifin Not Quite Paused, But Growth Has Slowed

As Cyclical Headwinds Rise, Rexnord Not Getting Much Love

Between the rally in industrial stocks from December and what appears to be rising headwinds in many end-markets, I don’t think investors are exactly spoiled for choice for great ideas in the industrial sector, but Rexnord’s (RXN) case stands out a bit for me. I wasn’t crazy about the shares back in May of 2018, and the stock has lagged the sector by about 10% since then, but the shares seem oddly valued relative to a decent motion control business and growing water business. I am worried about a slowdown in factory capex spending as well as shrinking growth in U.S. commercial construction, but those concerns seem magnified in Rexnord’s valuation.

Continue here:
As Cyclical Headwinds Rise, Rexnord Not Getting Much Love

Parker Hannifin: Long-Term Opportunity At The Cost Of Short-Cycle Risk

I thought the valuation at Parker Hannifin (PH) was getting interesting back in August, and the shares outperformed a bit relative to multi-industrial peers until reporting fiscal second quarter (calendar fourth quarter) earnings. Not unlike Eaton (ETN), Parker Hannifin offers some challenging trade-offs between a relatively bullish management team, further opportunities for margin improvement, and interesting valuation against what I think is a tricky short-cycle set-up that could see weaker results and expectations as 2019 rolls on. I think investors will sleep better in general with names like Honeywell (HON) and Emerson (EMR) (and maybe Ingersoll-Rand (IR) ), but the valuation on Parker Hannifin could make those short-term risks worth taking for investors with a longer-term orientation.

Read more here:
Parker Hannifin: Long-Term Opportunity At The Cost Of Short-Cycle Risk

Eaton's Challenges Look More Sector/Sentiment-Specific

The call I made earlier this year for preferring Honeywell (HON) and Eaton (ETN) in the industrial/multi-industrial space had been working pretty well through October, but looks more “okayish” now that more machinery-oriented industrials like Eaton have lost some luster. Eaton’s third quarter results had some air bubbles in it, but overall there wasn’t much that worried me and I still think this is an above-average idea in the industrial space. That said, there are growing signs that the cycle is slowing and liking Eaton now means fighting the tape to at least some extent.

Read more here:
Eaton's Challenges Look More Sector/Sentiment-Specific

Smiths Group Going Nowhere Fast

It's never fun, but sometimes companies force you to conclude that your prior assumptions were just wrong (or you can take the time-tested bagholder approach of "I'm not wrong, I'm early!"). In the case of Smiths Group (OTCPK:SMGZY) (SMIN.L), I thought earlier this year that management was on the cusp of delivering the sort of results and portfolio transformations that would show a true break from its not-so-charming past trend of weak growth and questionable capital allocation/portfolio management. Since then, I just haven't seen the sort of follow-through I need to see to maintain that optimism.

To be sure, Smiths isn't a disaster, and fiscal 2018 was the first upturn in organic growth in some time. Moreover, there is still some apparent undervaluation based on what I think are fairly undemanding assumptions. If management can get its "stuff" together - drive better margins in John Crane, turn around or sell Medical, improve Detection, and lay out a more coherent strategic portfolio plan - there's still room for this stock to do better. But in the short term, I believe the disappointments of the past few weeks and months will continue to weigh on sentiment and valuation.

Read more here:
Smiths Group Going Nowhere Fast

Parker Hannifin A Curious Mix Of Value And Cycle Risk

By and large, investors seemed to come out of the second quarter earnings cycle feeling better about industrial stocks and the amount of room left for the cycle to run, although that seems to be wavering a bit lately on worries that Turkey’s troubles could weaken already unimpressive demand in Europe. In the case of Parker-Hannifin (PH), though, the shares have continued to lag the industrial sector as a whole by a pretty noticeable amount year to date, as investors seem worried about the risk of “general industrial” and mobile equipment demand rolling over relatively quickly.

I’ll admit to being a little flummoxed by this stock right now. I thought there was some risk of underperformance (due mostly to perception/sentiment) when I last wrote about the stock, and the shares have underperformed the sector by about 5% since then. It is getting late in the game for a short-cycle name like Parker-Hannifin, but then, underlying trends in most of the company’s markets are pretty positive, and the valuation looks pretty undemanding even if there’s a noticeable slowdown in the reasonably near future.

Follow this link for the full article:
Parker Hannifin A Curious Mix Of Value And Cycle Risk

Seeking Alpha: Laird's Business Is Attractive, But The Valuation Is Less So

All things considered, I think a company leveraged to growth in high-end consumer devices, wireless communication, wired autos, and automation is sitting at an attractive intersection of revenue growth potential and pay-for-performance margin leverage. Britain's Laird (OTC:LAIRY, LRD.L) is such a company, with a strong presence in electromagnetic interference and thermal shielding, as well as telematics and antenna systems. What's more, I believe management's focus on R&D-driven sales growth will pay dividends in terms of sustainable market share and margins, and there is ample room for improvement in free cash flow generation.

The "but" is that the stock's nearly 40% move over the last year and nearly 100% move over the last two years would seem to capture a lot of these positive attributes. The company is small enough to be an acquisition target, and there is certainly upside potential from automation, auto OEMs, healthcare, and IoT, but I wouldn't pay just any price for those opportunities.

Read more here:
Laird's Business Is Attractive, But The Valuation Is Less So

Seeking Alpha: Worries About Europe And Energy Seem To Weigh On Parker-Hannifin

A good general rule of thumb says that investors should look to buy high-quality companies when investor enthusiasm has waned, and it does seem as though sentiment has cooled on Parker-Hannifin (NYSE:PH) in recent months. It's not exactly a wash-out yet, as the shares are still up a bit over the past year and have outperformed Eaton (NYSE:ETN) and Rockwell (NYSE:ROK) while lagging Honeywell (NYSE:HON) and 3M (NYSE:MMM).

Parker-Hannifin's exposure to an improving aerospace sector is a good thing, as is the company's leverage to trucks and cars and a solid track record of operating performance. With sizable exposure to Europe, though, forex has become a concern as has Parker's exposure to PMI-sensitive diversified industrial markets. I do think these shares are now at a level where long-term investors ought to be interested, but Parker-Hannifin's sensitivity to industrial growth is a risk if North America slows and/or Europe slips back toward contraction.


Please click here for more:
Worries About Europe And Energy Seem To Weigh On Parker-Hannifin

Seeking Alpha: Parker Hannifin Can Take Another Run At $130-Plus

It's not too hyperbolic to say that Parker Hannifin (PH) makes the global economy go. A leader in fluid power systems with double-digit share, Parker Hannifin is a force in hydraulics, fluid connectors, seals, automation, fluid control, filtration, and aerospace, boasting a diverse mix of industry end-markets like manufacturing, all manner of vehicles and attachments ("mobile"), and so on. In fact, Parker Hannifin's order flow generally tracks global industrial production pretty closely. If you believe that manufacturing growth is turning back up and that second quarter U.S. GDP will rebound from inventory drawdowns in the second quarter, this is a good stock to investigate for its early-cycle exposure.

Please read the full article here:
Parker Hannifin Can Take Another Run At $130-Plus

Seeking Alpha: Despite Soft Orders, Crane Looking For Market Recoveries In 2014

Like so many other industrial names, Crane (CR) ended up having a pretty good 2013 from a stock performance perspective. Orders weakened around mid-year, leading to three straight book-to-bills below 1.0, but the Street stayed optimistic on the prospect for better sales in 2014, and the benefits to be had from the MEI acquisition. Not unlike many other companies with exposure to fluid handling and aerospace, Crane doesn't jump out as cheap based upon trailing ratios, though the cash flow picture is a little more encouraging.

Read the full article here:
Despite Soft Orders, Crane Looking For Market Recoveries In 2014

Seeking Alpha: Interpump A Largely Unknown Italian Success Story

Outside of fashion brands like Gucci and perhaps sports cars like Ferrari, Italy really doesn't enjoy a particularly good reputation as a home to solid companies that are competitive on an international basis. Interpump Group S.p.A (OTC:IPGLF) (IP.MI) looks like a notable exception to me. Through both M&A and internal development, Interpump has emerged as a global leader in high/ultra-high pressure pumps and hydraulic components like power take-offs and cylinders.

Interpump's margins and returns on capital compare pretty well to better-known U.S. industrials like Eaton (ETN), Parker-Hannifin (PH), and Emerson (EMR), and many U.S. corporations could take a lesson from Interpump in terms of how it communicates and shares information with shareholders. These shares went up almost non-stop through 2013 and are not a screaming bargain today, but it's a company worth further due diligence and a spot on watch lists.

I also want to note that while Interpump technically has an ADR listing, I cannot confirm that shares have actually ever traded under that IPGLF ticker. Given that access to European markets has gotten better and better (and cheaper), I would definitely suggest buying the Italian shares over the ADRs.

Read the full article here:
Interpump A Largely Unknown Italian Success Story

Seeking Alpha: Entegris Is Another Small-Cap Play On Future Semi Spending

Investors aren't exactly in danger of running out of ways to play expected improvements in semiconductor capital spending in 2014. I've already talked about opportunities in companies like Ultratech (UTEK) and Mattson (MTSN), and both appear to offer significant value if and when next-gen capital spending increases.

Entegris (ENTG) is a different sort of play. Unlike Ultratech and Mattson, there really isn't much of a missionary aspect to sales - semiconductor manufacturers already understand the need for contamination control and advanced material handling, and Entegris already holds solid share in its core markets. That said, more advanced fab processes should require more filtration equipment and a larger sales opportunity for Entegris. While I don't necessarily see as much upside in the Entegris bull-case scenario (compared to Ultratech or Mattson, that is), I believe there is less execution risk here and still an opportunity to generate worthwhile capital gains.

Please follow this link to the full article:
Entegris Is Another Small-Cap Play On Future Semi Spending

Investopedia: Parker Hannifin Skids, But Conditions May Be Bottoming

It's not too much of a stretch to say that Parker Hannifin (NYSE:PH) makes industry move. Although the company doesn't give much in the way of end-market breakouts, hydraulics, seals, valves, and connectors are vital to a host of markets ranging from vehicles to energy to basic machinery, and Parker counts customers as diverse as Caterpillar (NYSE:CAT) and McDonald's (NYSE:MCD) in its roster.

Orders haven't been very good for a while now, and that has basically mirrored the malaise in the wider industrial market. Although Parker's fiscal fourth quarter performance was not very strong (and guidance likely disappointed many investors), flat orders and management's commentary about signs that the economy is bottoming could make this a stock to watch again.

Keep reading here:
http://www.investopedia.com/stock-analysis/080713/parker-hannifin-skids-conditions-may-be-bottoming-ph-etn-cat.aspx

Investopedia: It Should Be Up From Here For Eaton

The whole point of equity investment to assess, and discount, the value of tomorrow's earnings into today's dollars. To that end, Eaton (NYSE:ETN) is an interesting story. I believe the company is getting through the worst in the hydraulics and vehicle businesses, and that the electrical business should see many years of solid growth. On the other hand, the market already likes this stock quite a bit, and it looks like investors need to go elsewhere for a bargain.

Please follow this link for more:
http://www.investopedia.com/stock-analysis/051313/it-should-be-here-eaton-etn-emr-hon-itw-abb-ph.aspx