Could North America’s economic recovery finally be real?
Parker Hannifin (PH) recently reported record quarterly earnings in the fiscal first quarter on the back of strong demand in North America. Even better yet, Parker Hannifin is still a value stock with a forward P/E of just 13.4.
Parker Hannifin has seen sales rebound to 2008 levels in both of its largest segments, Industrial North American and Industrial International, which is telling that this recovery is for real.
This is a marked shift from the dark days of the recession when the international segment outperformed.
Originally founded in Cleveland in 1938, Parker Hannifin, which manufactures motion and control technologies for industrial and aerospace customers, has expanded to now employ 55,000 people in 46 countries.
Global Demand Rebounding
If any company has the pulse of the global recovery on the industrial side, it’s a company like Parker Hannifin.
The news from the company’s fiscal first quarter report on Oct 19, was good. Total sales jumped 27% to $2.8 billion from $2.2 billion in 2009.
“Demand levels continued to improve across many markets as reflected in a significant increase in sales for the first quarter,” said Don Washkewicz, Chairman, CEO and President.
Sales in its two largest segments have returned to roughly 2008 levels for the first quarter.
Industrial North American segment:
2010: $1.1 billion
2009: $783.1 million
2008: $1.1 billion
Industrial International segment:
2010: $1.1 billion
2009: $850.3 million
2008: $1.2 billion
Parker Easily Surprised on the Zacks Consensus Estimate
Earnings per share were $1.51 for the first quarter compared to the consensus of just $1.07. This was the fourth straight beat in a row.
The company has surprised, on average, by 44% during that streak.
Analysts Scramble To Revise Estimates As Guidance Is Raised
Given the better-than-expected fiscal first quarter, Parker Hannifin sharply raised its full year guidance to the range of $5.20 to $5.80 from its August forecast of $3.60 to $4.40 per share.
Not surprisingly, given the magnitude of the guidance increase, analysts also moved to quickly revise full year estimates higher.
In the last week, all 14 estimates moved higher for fiscal 2011, pushing the Zacks Consensus up to $5.76 from $4.48 per share.
Earnings are now expected to grow 69.4% in fiscal 2011.
Dividend Raised Not Just Once, But Twice in 2010
Most shareholders are pleased if a dividend is increased even once a year. But Parker Hannifin has actually raised its dividend twice this year.
In August it announced its second penny increase in a row, raising the payout to 27 cents from 26 cents.
It was the company’s 241st consecutive quarterly dividend.
Where’s the Value?
Shares are trading at 2-year highs and are fast approaching 5-year highs.
Yet the stock still has some excellent valuations.
In addition to its attractive P/E ratio, it is trading with a price-to-book ratio of 2.5 which is under its peers at 2.9 and within the value parameters.
The company also has a solid return on equity (ROE) of 15.5%.
Parker Hannifin is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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