Parker Hannifin (PH) has announced the acquisition of Gulf Coast Seal Limited based in Houston, Texas.
The target provides highly engineered elastomeric and plastic sealing components used in offshore oil and gas drilling applications as well as quick-in-response machining and value-added services. It has an annual turnover of $45 million and employs 160 people.
Gulf Coast Seal provides Parker with a product line extension in the form of a full line of PEEK components. Industrial-grade PEEK components are used in the aerospace, automotive, chemical, electronics, petroleum, and food and beverage industries.
We believe Parker-Hannifin is a high-quality company and is showing good execution through its cost-saving efforts. Although Parker-Hannifin stands to benefit from any recovery in global manufacturing activity, its increased scale in international business (where Europe represents by far the largest geography) as well as its meaningful aerospace presence increases its late-cycle exposure relative to past economic cycles.
We expect MRO (Maintenance, Repair, and Overhaul) to get a boost from continued deferral of capital investment in new machines. Parker-Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.
Although Parker-Hannifin operates in fragmented and cyclical markets, its strong distribution system provides an edge over competition. We believe this distribution system is likely to result in asset turnover and returns on invested capital above those of its peers, despite the weak economy. In addition, to stay ahead of competition, the company emphasizes product innovation and technological improvement.
Parker-Hannifin is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. In addition to motion and control products, the company is also a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems. Its major competitor is Eaton Corporation (ETN).
We currently maintain a Strong Buy recommendation on Parker-Hannifin Corp., with a Zacks #1 Rank over the next one-to-three months.
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