Parker-Hannifin Corporation PH posted impressive results in the first half of fiscal 2018, after charting robust earnings beats and strong top-line growth in 2017. Recently, the Zacks Rank #2 (Buy) company reported its 10th consecutive earnings beat in second-quarter fiscal 2018 results.
The company’s top line has been gaining momentum on the back of contribution from the CLARCOR acquisition and continued outstanding performance in the company’s Diversified Industrial segment, particularly in North America.Further, its diligent global restructuring initiatives are proving conducive to profits. These initiatives helped Parker-Hannifin offset weakness in some vital regions, which strengthened its position in the end markets.
Buoyed by the competency of the revamped Win Strategy and its strategic acquisitions, Parker-Hannifin is bullish about delivering fundamental financial goals for fiscal 2018. Concurrent with second-quarter fiscal 2018 results, Parker-Hannifin raised its fiscal 2018 guidance once again.
Adjusted earnings from continuing operations are projected in the range of $9.65-$10.05 per share (up from the previous band of $9.10-$9.70). The guidance is adjusted for expected business realignment expenses of approximately $58 million, a net one-time adjustment in income tax expense of $224.5 million and CLARCOR acquisition-related expenses of $52 million. Parker-Hannifin expects to generate synergy savings of about $58 million from CLARCOR integration in fiscal 2018.
The company expects sales to grow in the range of 15.3-18.9% from the previous fiscal, with organic growth projected at around 6.5% and acquisitions to contribute roughly 8.1%.
Parker-Hannifin Corporation Price, Consensus and EPS Surprise
Further, analysts too seem to be optimistic on the stock over the last two months. The Zacks Consensus Estimate for fiscal 2018 earnings has inched up from $9.57 to $9.93, supported by 11 upward estimate revisions versus none downward.
In spite of so many growth drivers and positive developments, the company’s shares have declined 6.6% year to date, underperforming the industry’s upside of 0.1%.
The reason for the disappointing performance could be investors’ concern over the company’s margin trends. It is true that Parker-Hannifin is suffering from near-term margin issues. The reason for the same is that the company is in the middle of integrating CLARCOR and targeted plant closures (23 in fiscal 2017, 39 in fiscal 2018) are also disturbing margins as well as operational efficiency. However, these factors are expected to smoothen in the near term.
The fact that the company’s orders are accelerating should pacify investors. Orders increased 13% in aggregate in fiscal second quarter. This marks the sixth consecutive quarter of order growth for the company, which indicates improving demand in the key end markets and regions.
Also, the company is well placed when compared with its peers in terms of valuation. Parker-Hannifin’s trailing 12-months PE ratio is pegged at 20.73, which is quite a bit lower than the industry’s PE of 24.75. This indicates that investors who want exposure to industrial recovery should consider the company as an investment right now.
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Other Stocks to Consider
Some other top-ranked stocks in the same space worth considering now include Applied Industrial Technologies, Inc. AIT, Dover Corporation DOV and RBC Bearings Incorporated ROLL, each sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial Technologies has a robust earnings surprise history, with an average beat of 11% over the trailing four quarters, beating estimates each time.
Dover Corporation has generated four strong beats during the same time frame, for an average positive surprise of 7.3%.
RBC Bearings has a decent earnings surprise history for the preceding four quarters, surpassing estimates thrice for an average of 8.3%.
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