Parker-Hannifin (PH)

[Roadmap2Retire]

A company that I've been keeping an eye on. Would love to add this to my portfolio.

Down 5% after lowering guidance.
http://seekingalpha.com/news/2459516-par...g-guidance

Thoughts?

[rapidacid]

Appears to be a very good entry point. They seem to get slaughtered every earnings report but are always higher by the time the next earnings roll around.

About 20% of shares put to bed last 10 years, current shareholder yield of 8%, 12% net cash as % of market cap, 28% payout ratio, dividend champion

I own it and love it

[Dividend Watcher]

R2R, at this price (~$118), the P/E at the mid-point of lowered guidance ($7.65) gives you a P/E of 15.

From your article on SA:

Quote:A Dividend Champion, having raised its dividend for 58 consecutive years, Parker-Hannifin flies under the radar for most investors as the starting initial yield is low (currently at 2.1%).

I've said it before, if you can handle the low yield, and are younger and patient, you will be rewarded. Go look at the 20 year chart. The only time it got really spanked was the Great Recession. They were hardly singled out.

Great company & good management. The yield is just too low for me. Now if it got down to less than $90 . . .

[Roadmap2Retire]

I agree with all your points - the PE around 15 sure looks enticing - and thanks for the reminder DW

Thanks for sharing the chart, rapid.

[earthtodan]

I've looked at PH, but kind of like HON I just couldn't quite get a grip on what their main business focus and end markets are. They have industrial, medical, aerospace, etc. all of which are broad umbrellas. They're too diversified to understand at a glance, although not as much as MMM. I haven't seen anyone rave about exemplary management or a unique strategy or anything else to distinguish them from other diversified industrials. In other words, the numbers look fine and the dividend growth history is great, but the story isn't there. A good story matters, in my opinion, in order to have a strong hand as an investor. If I don't really understand why I bought it, eventually I'll be tempted to move the funds elsewhere. If there's a good story that will help me understand why PH is a great investment that I have to have in my portfolio, please do tell.

[Dividend Watcher]

Dan, they are everywhere. PH does not have a specific end market or product line. Rather, like 3M as you mentioned, they are found in so many different products and fields often as parts making up a whole assembly. When I was on my submarine, PH supplied many of the valves, metering assemblies, hoses, fittings, sampling tubing, control assemblies etc. for our vast pneumatic and hydraulic systems that were used for powering the ship through the ocean and firing weapons. When I got out of the Navy and went to work at a power plant, I looked around and saw the same things -- PH parts and pieces of many of the systems to run a complex nuclear plant. Many of the products wear out and need to be replaced from time to time. Not only that, much of their higher value products are all covered by patents. I imagine you'll find their parts in many industries whether it's included in the final product or used in the manufacturing.

Nope, no distinct strategy other than producing well engineered and manufactured products widely available and covered by patents, where possible. One of their advantages is their broad product array. Sure, you can probably get some of their generic O-rings cheaper someplace else but larger industries often would prefer to do business with fewer vendors if the products meet their needs.

I think their management is great. I'm not sure they're looking to be in the spotlight. The numbers speak for themselves. Sure, they take a beating in a recession just as most other manufacturers do. Despite the headwinds in the manufacturing sector, they still do a decent job with earnings and the dividend.

I only know what I've seen and worked with and I've never been disappointed with their products.

[rapidacid]

Dan, I hear you.

There's not much of a story to them or anything to romanticize. It's basically sell quality in demand stuff at profitable prices and rinse & repeat.

I read through the earnings call transcript last night and it had to be the most boring thing I've ever read. "We need to sell more stuff and lower the costs associated with selling them" is what it boils down to.

They're global so FX has been a big piece of the narrative / drag last couple of quarters. This too shall pass.

But Dan, I totally get what you're saying about looking to understand the story so you don't get bored and look to rotate them out. We all have to march to the beat of our own drum. For me, when I identify something that scores high and I can understand it's not just a fad and it fits in my portfolio I usually just close my eyes and click buy.



PH, ROK, HRS, BR, DCI …. who the hell knows what they really do aside from sell something at a profit, buy back shares every year, increase dividend every year, increase in price every year ... and that's what works for me

[Roadmap2Retire]

Dan,
I hear you - and remember you saying the same thing a few months ago, which made me pause and re-think about some of the industrial names.

Like DW and rapid have said - theres no sexy story involved - its boring stuff that makes the world go round. I think thats what it boils down to - when it comes to industrials...GE, UTX, HON, EMR, PH etc. We get excited about GE and UTX because they make engines and we can relate to the airplanes - but the others are just as crucial for other industries such as what DW pointed out in an earlier post.

I concur with rapid's point about reading PH's annual report - its boring as hell! But boring is good, no?

[earthtodan]

Points very well made guys. I guess my high bar for admittance comes from the fact that I'm already pretty heavy into industrials (and I still don't own some of the ones I want), and there are 20 on my watch list. And that doesn't count transportation & distribution companies, railroads, or heavy construction, which I put into other categories.

I've read the PH shareholder letter and downloaded the IR app, which has a bunch of videos that attempt to describe each of their market segments (although in more of a promotional way than a deep dive). What I came away missing was the source of a moat. With UTX, the story for me is that they sell razors and blades in the form of elevators and jet engines, both of which have major barriers to entry in the form of time and investment, and both of which make money from long-term maintenance contracts, which are a virtually unassailable source of future earnings. PH has produced a higher rate of dividend growth however by selling valves, hoses, fittings and electric motors, and thousands of other things. I'll keep it on my watch list and maybe dig into it again when the inspiration strikes.

[Kerim]

Thanks for bringing this one to my attention, guys. Not a stock I had spent any time on before. Just scratching the surface now, but excited to dig deeper. It jumps to near the top of my screening list -- which is saying a lot for something that yields just over 2 percent, since my system weights starting yield pretty heavily. For it to score a 75 nonetheless is pretty promising.

It has an incredible history of raising the dividend -- 59 years now, going by Dave Fish's CCC list. And despite that, the payout ratio is still very comfortably around 30 percent. They've been able to do this by growing earnings at a steady clip. They took a big hit in the great recession, but bounced back nicely. Earning have climbed slowly since 2011, but they are climbing. I'll want to understand the plan going forward. Dividend growth has been great.

This pretty much sums up my approach:

(04-29-2015, 07:16 AM)rapidacid Wrote: For me, when I identify something that scores high and I can understand it's not just a fad and it fits in my portfolio I usually just close my eyes and click buy.

I'll definitely be taking a closer look at this one over the next few days and weeks. Especially since I'm currently very light on industrials.

Dan -- just curious, if this one doesn't broach the top tier of your industrials list, which ones do? Maybe I'm overlooking some other greats as well!

[rapidacid]

(05-03-2015, 05:08 PM)Kerim Wrote: And despite that, the payout ratio is still very comfortably around 30 percent. They've been able to do this by growing earnings at a steady clip.

Also share count has reduced from 181MM to 148MM over the last 10 years. From the latest earnings call:

Quote:We’ve been active with our share repurchase program following our October announcement of our new authorization of the repurchase of $2 billion to $3 billion in shares in over two years. We remain committed to completing the share repurchase plan within that time period. To that end, we repurchased $477 million worth of Parker shares in the quarter, which brings our total for the fiscal year to-date to $1.3 billion.

Quote:And on the topic of share repurchase as communicated during last quarter’s earning call we remain committed to the $2 billion to $3 billion share repurchase announced in October. To-date share repurchases spent totaled 67% of the low end of the announced repurchase program and we anticipate that the balance of the commitment for repurchase will be made discretionarily over the remaining 18 months.

Quote:So that being said, the ideal mix would be we would do $2 billion approximately of the share repurchase in the billion of acquisitions over that time period that we announced. But if the acquisitions do not materialize then we will make up the difference with a share repurchase.

Quote:Joel Tiss - BMO Capital Markets
And is it safe to assume that there is nothing really big in the acquisition pipeline, or else you guys would balance the share repurchase and the acquisitions a little more?

Thomas Williams - Chief Executive Officer
Joel, it’s Tom again. The pipeline is getting more active, and - I’ll probably never be happy with the volume there, but it is getting more active, so I’m pleased with that. Our sweet spot will continue to be in the $30 million to $300 million revenue range. That being said, we are a big company. We could do a bigger acquisition, but I think you will see us - the majority of activity is going to be in our traditional wheelhouse as far as revenue size.

So if there were no acquisitions and the full $3B was utilized for repurchases the float could be reduced by another 14.1MM shares using Friday's close of $120.70. This would reduce the dividend payments by about $35.5MM a year using the current dividend yield.

If they only use the $700MM left on the low end of $2B in repurchases they'd still retire about 5.8MM shares. This would reduce yearly dividend payments by $14.6MM using the current dividend yield.

The repurchases effectively reduces float between 4-10% in the forward 18 month period. This also lowers payout ratio / increases EPS by 4-10%.

EPS is $7.37 this year and estimated to be $8.13 next year. Not sure if analyst EPS projections have the repurchases baked in. I'm sure they do. $7.37 * 1.1 ( accounting for the full $3B in repurchases ) puts EPS at $8.11.

Debt to equity stands at 0.5

Payout ratio has increased from 15% in 2005 to 28% currently.

Constant share repurchases has allowed PH to increase their dividends per share by 4.58X in the last 10 years but actually only have to pay out 3.17X more cash.

[thedivhunter]

Yeah not too bad, but prefer the look of PACCAR for an industrial. Better yield and analysts predicting onwards and upwards

If you get in in the next couple of days you can get the upcoming dividend.
http://simplywall.st/NasdaqGS:PCAR/paccar#income