Parker-Hannifin's Healthy Outlook, Increased M&A Appetite Makes It Attractive, Says Analyst

Mizuho Securities analyst Brett Linzey upgraded the shares of Parker-Hannifin Corp PH from Neutral to Buy and raised the price target from $550 to $650.

The upgrade and the rise in price target come after the company announced its five-year financial targets during the investor’s day event.

PH sees 4%-6% organic sales growth CAGR through 2029, 27% adjusted operating margin, 28% adjusted EBITDA margin and a 10%+ adjusted EPS CAGR.

Execution has been rock solid and the company has established one of the more credible track records in the coverage universe, says the analyst.

PH has established profit margin targets four times in the last ten years and has exceeded each ahead of schedule, paving the way for more upside conversion, noted the analyst.

According to the analyst, Aerospace & Defense is now one-third of the business mix and is expected to grow in the high-single digit through FY29, driven by air traffic growth and new deliveries.

Electrification and clean technology trends are expected to be key growth drivers across two-thirds of the portfolio inclusive of Aero, said the analyst.

Parker rolled forward its FY27 targets to FY29 with a healthy increase in the margin outlook, asserted the analyst.

The analyst said each reported business segment has room for upside and should contribute to the ~240bps needed to hit the new ~27% operating margin target.

Recent mergers and acquisitions such as Clarcor, Lord, Exotic, and Meggitt have achieved the cost synergy targets implemented by management, noted the analyst.

PH stock has underperformed by ~700bps vs. the group over the past month after solid trading performance to start ’24, said the analyst.

Price Action: PH shares are trading lower by 0.09% at $529.33 at the last check Tuesday.

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