Parker-Hannifin Corp Valuation – January 2019 $PH

Company Profile (excerpt from Reuters): Parker-Hannifin Corporation, incorporated on December 30, 1938, is a manufacturer of motion and control technologies and systems, providing precision engineered solutions for a range of mobile, industrial and aerospace markets. The Company operates through segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on domestic commercial, military and general aviation aircrafts.


Downloadable PDF version of this valuation:

ModernGraham Valuation of PH – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?


Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,028,374,412 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 48.03% Pass
6. Moderate PEmg Ratio PEmg < 20 18.33 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.17 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $8.26
MG Growth Estimate 3.15%
MG Value $122.19
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $119.74
MG Value based on 0% Growth $70.19
Market Implied Growth Rate 4.91%
Current Price $151.33
% of Intrinsic Value 123.84%

Parker-Hannifin Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $6.83 in 2015 to an estimated $8.26 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Parker-Hannifin Corp revealed the company was trading above its Graham Number of $101.81. The company pays a dividend of $2.74 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 18.33, which was below the industry average of 23.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-29.85.

Parker-Hannifin Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$29.85
Graham Number $101.81
PEmg 18.33
Current Ratio 1.60
PB Ratio 3.34
Current Dividend $2.74
Dividend Yield 1.81%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $5,298,082,000
Total Current Liabilities $3,308,521,000
Long-Term Debt $4,313,221,000
Total Assets $15,425,042,000
Intangible Assets $7,441,245,000
Total Liabilities $9,317,936,000
Shares Outstanding (Diluted Average) 134,664,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.41
Jun2018 $7.83
Jun2017 $7.25
Jun2016 $5.89
Jun2015 $6.97
Jun2014 $6.87
Jun2013 $6.26
Jun2012 $7.45
Jun2011 $6.37
Jun2010 $3.40
Jun2009 $3.13
Jun2008 $5.53
Jun2007 $4.68
Jun2006 $3.71
Jun2005 $3.35
Jun2004 $1.94
Jun2003 $1.12
Jun2002 $0.75
Jun2001 $1.97
Jun2000 $2.21
Jun1999 $1.89

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.26
Jun2018 $7.11
Jun2017 $6.71
Jun2016 $6.53
Jun2015 $6.83
Jun2014 $6.53
Jun2013 $6.01
Jun2012 $5.65
Jun2011 $4.71
Jun2010 $3.95
Jun2009 $4.17
Jun2008 $4.41
Jun2007 $3.55
Jun2006 $2.72
Jun2005 $2.09
Jun2004 $1.50
Jun2003 $1.39

Recommended Reading:

Other ModernGraham posts about the company

Parker-Hannifin Corp Valuation – March 2018 $PH
Parker-Hannifin Corp Valuation – July 2016 $PH
Parker Hannifin Corp Valuation – January 2016 Update $PH
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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