Parker-Hannifin Corporation PH recently declared that it has completed the acquisition of President Engineering Group Limited (“PEGL”) an U.K.-based company. The latter specializes in manufacture and distribution of cryogenic valves for liquefied natural gas (“LNG”) and Industrial Gas applications. The terms of the transaction were, however, kept under wraps.
Parker-Hannifin has integrated PEGL with its Instrumentation Group. From now on, 60% of PEGL’s revenues will be accounted under Parker-Hannifin’s North American Diversified Industrial business, while 40% will be reported under its International Diversified Industrial business.
Having garnered $29 million in total revenue for the last financial year, PEGL’s brands, including Bestobell, Conflow and Bretby Gammatech, hold a solid record of enhancing procurement, transport and storage of LNG. Moreover, PEGL’s monitoring applications, popular for ensuring safety during mining activities, will help boost Parker-Hannifin’s position in the mining markets. This apart, management believes this acquisition will also enhance the company’s position in the LNG and Industrial Gas markets.
Parker-Hannifin has proactively conducted acquisitions to strengthen its core business. In recently concluded fiscal 2015, the company completed 4 acquisitions for a total sum of $27 million in cash. Acquisitions completed in the last year contributed $14 million in sales in fiscal 2015. Both Diversified Industrial North America and Diversified Industrial International operations reaped benefits of $7 million each from these buyouts.
Over the past 5 years, global energy prices have witnessed increased volatility. However, with a slow but steady recovery in the global economy, demand for oil and gas field services are expected to surge. Also, government regulations regarding occupational safety and health of employees have fueled demand for gas detection equipment. We believe these regulations, coupled with the rising popularity of advanced gas detectors, will allow Parker-Hannifin to reap significant benefits from this acquisition.
However, of late, Parker-Hannifin has been experiencing sluggishness in its key natural resources market that includes oil & gas, agriculture, and mining & construction equipment. Such weakness exerts pressure on the company’s distributors who are engaged in the oil and gas business.
Though Parker-Hannifin expects to offset these weaknesses in the second half of fiscal 2016, heavy troubles are anticipated in the first half. Weakness in key end markets, coupled with strengthening of the U.S. dollar, adversely affected the order levels during fourth quarter of fiscal 2015, which fell 9%, and in turn, hurt revenue growth. If such weakness persists, the company’s performance will be hampered.
Parker-Hannfin currently holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry are Graco Inc. GGG, Luxfer Holdings PLC LXFR and Graham Corporation GHM. All three stocks carry a Zacks Rank #2 (Buy).
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