PARKER HANNIFIN CORP (NYSE:PH) – A Quality Stock Worth Considering

PARKER HANNIFIN CORP (NYSE:PH) was identified through our Caviar Cruise screen, which focuses on high-quality companies with strong fundamentals. PH stands out due to its solid profitability, efficient capital allocation, and stable growth—key traits for long-term investors. Below, we examine why this stock fits the quality investing criteria.

Key Strengths

• High Return on Invested Capital (ROIC): PH’s ROIC (excluding cash and goodwill) is an impressive 63.3%, far exceeding the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
• Strong EBIT Growth: Over the past five years, PH has delivered 13.9% annual EBIT growth, outpacing its revenue growth—a sign of improving operational efficiency.
• Healthy Debt Management: With a Debt-to-Free Cash Flow ratio of 3.0, PH could repay its debt in just three years using current cash flows, reflecting financial stability.
• Exceptional Profit Quality: The company converts 137% of net income into free cash flow (5-year average), well above the 75% benchmark, indicating strong earnings reliability.

Fundamental Analysis Summary

Our report assigns PH a 5/10 rating, balancing strengths and weaknesses:

• Profitability (9/10): High margins (17.1% net, 20.6% operating) and industry-leading returns on equity (25.3%) and assets (11.7%).
• Financial Health (5/10): Moderate solvency (Altman-Z score: 5.51) but weaker liquidity metrics (Quick Ratio: 0.70).
• Valuation (2/10): P/E of 25.2 is above industry norms, though justified by profitability.
• Growth (3/10): Revenue growth has slowed (4% 5-year CAGR), but EPS growth remains steady (16.5% 5-year CAGR).

For investors seeking durable businesses, PH’s operational strength and cash flow generation make it a compelling candidate.

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Disclaimer
This is not investing advice. Always conduct your own research before making investment decisions.