Parker-Hannifin Has Upside Potential - BofA Analyst Highlights PMI Trends And Meggitt Accretion's Role

BofA Securities analyst Andrew Obin upgraded the shares of Parker-Hannifin Corp PH from Neutral to Buy and raised the price target from $435 to $475.

According to the analyst, the PMI has seemingly bottomed. The analyst's destocking thesis has not played out as lead times remain stubbornly high, limiting risk to headline PMI.

Meggitt accretion is a continuing source of upside/margin of safety and PH continues to close the gap on margins/returns with high-quality capital allocators, added the analyst.

While the analyst recognizes potential macro risks, the industrial demand did not deteriorate as expected.

A year after closing the Meggitt acquisition, the company continues to execute well, noted the analyst.

Parker has committed to $300 million in synergies by FY26 and is targeting ~$75 million in run-rate savings for Meggitt exiting FY24.

The analyst has raised the synergy forecast by a cumulative $8 million and forecast the company exiting the year with ~$80 million of incremental run-rate synergies. 

The analyst believes that Meggitt and broader aerospace exposure is the key source of margin of safety for the company in an uncertain macro environment.

Over the past several decades, PH has materially improved its returns and reduced cyclicality through operational excellence and strategic mergers & acquisitions, opined the analyst.

The analyst believes that PH offers growth and returns similar to best in class peers like Illinois Tool Works Inc. ITW and AMETEK, Inc.AME.

Price Action: PH shares are trading lower by 0.20% at $383.83 on the last check Thursday.