Parker-Hannifin Benefits From Business Strength Amid Risks

Parker-Hannifin Corporation PH is witnessing persistent strength in the commercial and military end markets across both OEM and aftermarket channels. Its Aerospace Systems segment’s organic revenues jumped 14% year over year in the second quarter of fiscal 2025. Strength in its defense end market, owing to stable U.S. and international defense spending volumes, has also been driving its performance.Parker-Hannifin expects the Aerospace Systems segment’s organic sales to increase 11% year over year in fiscal 2025. In addition to growth in the aerospace and defense markets, key trends in other end markets hold promise for long-term growth. These include the advancement of clean technologies in support of carbon reduction targets, higher automation and infrastructure investments, digitalization and electrification.PH has doubled its portfolio of aerospace, filtration and engineered materials in the past several years. Also, it is strategically shifting toward longer-cycle products (to attain stable and predictable revenue streams) supported by secular growth trends, which is improving its revenue mix. The growth drivers, i.e., the Win strategy, macro-CapEx reinvestment (a strategy of reinvesting capital expenditures into a company's operations, assets and growth initiatives), acquisitions and secular growth trends are expected to help PH achieve 4-6% revenue growth by fiscal 2029.The company also expects to increase its earnings by more than 10% per share (CAGR) and is set to achieve a 27% adjusted segment operating margin by fiscal 2029. It is worth noting that Parker-Hannifin reported an adjusted segment operating margin of 25.6% in the second quarter of fiscal 2025, up 110 bps from the year-ago number.PH rewards its shareholders handsomely through dividends. In the first six months of fiscal 2025, it rewarded its shareholders with dividends of $420.1 million, an increase of 10.2%. Also, in April 2024, the company hiked its quarterly dividend by 10% to $1.63 per share.Despite the positives, Parker-Hannifin is witnessing weakness across the Diversified Industrial segment. Softness in the off-highway end market, due to tepid demand in construction and agricultural sectors, has been ailing both the North America and international businesses of the segment. Lower demand for automotive cars has been affecting the North America business as well.Challenges in the energy end market, owing to near-term delays in projects and continued destocking, have also affected the segment’s performance in the fiscal second quarter. The segment’s sales decreased 7.5% in the fiscal second quarter, on a year-over-year basis.The company’s weak liquidity position is also concerning. Exiting the second quarter of fiscal 2025, it had cash and cash equivalents of $395.5 million, much lower than the short-term debt of approximately $2.37 billion. This implies that it does not have sufficient cash to meet its short-term debt obligations.Given PH’s extensive presence across international markets, its business is exposed to risks like political, environmental and foreign currency exchange rate fluctuations. In the fiscal second quarter, foreign currency translation lowered sales by approximately 0.9%.It also operates in the highly competitive specialty industrial machinery market. The company, which belongs to the Zacks Manufacturing - General Industrial industry, faces stiff competition from several peers like Danaher Corporation DHR, Emerson Electric Co. EMR and Crane Co. CR.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Emerson Electric Co. (EMR): Free Stock Analysis Report Parker-Hannifin Corporation (PH): Free Stock Analysis Report Danaher Corporation (DHR): Free Stock Analysis Report Crane Company (CR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks