Stock Analysis: Parker Hannifin Corp (PH)
Company Description: Parker-Hannifin Corp is a global maker of industrial pumps, valves and hydraulics. Its products are used in everything from jet engines to trucks and autos and utility turbines.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
PH earned two Stars in this section for 3.) and 4.) above. PH has paid a cash dividend to shareholders every year since 1949 and has increased its dividend payments for 52 consecutive years. It’s one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.
PH earned two Stars in this section for 3.) and 4.) above. PH has paid a cash dividend to shareholders every year since 1949 and has increased its dividend payments for 52 consecutive years. Its one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
NPV MMA Diff.Years to > MMA
PH earned one Star in this section for 1.) above. The NPV MMA Diff. of the $2,839 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as PH has. If PH grows its dividend at 8.0% per year, it will take 7 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.42%.
Other: PH is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. PH’s industrial and aviation businesses are highly cyclical. They operate in a competitive environment and are sensitive to energy costs. With the recent economic downturn, manufacturing firms (much of PH’s customer base) are extremely cautious on spending. This is likely to continue until the global economy shows at least some signs of recovery. Risks include continued declines in global economic growth, an extended downturn in the aerospace market and the potential for production problems.
Conclusion: PH earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks PH as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $37.23 before PH’s NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 2.69%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 9.9%. This dividend growth rate is above the 8.0% used in this analysis. PH has a risk rating of 1.50 which classifies it as a low risk stock.
PH is a world-class industrial company with a favorable earnings and dividend track record. It’s valuations are near all-time lows. Currently, PH’s NPV MMA Differential is not enough to justify its current risk. I would give PH consideration at prices below $37.23, but would not give strong consideration until the price hit $32.17. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I did not have a position in PH (0.0% of my Income Portfolio).
What are your thoughts on PH?
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