Parker Hannifin Corporation (PH) has acquired Micro Thermo Technologies of Canada, a company specializing in refrigerant controls and energy optimization systems. The target company, with annual sales of $10 million, will be merged into the Electronics business unit of Parker. The acquisition will enhance the net income of Parker within the first twelve months.
We believe Parker is a high-quality company that’s showing good execution through its cost-saving efforts. While Parker stands to benefit from any recovery in global manufacturing activity, the increased scale in its international business (where Europe represents by far the largest geography) and its meaningful aerospace presence increase 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’s strong exposure to MRO-type products and ability to convert net income into free cash flows will benefit future earnings.
Although Parker 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 peers, despite the impact of the weak economy. In addition, to stay ahead of competitors, the company emphasizes product innovation and technological improvement.
The global motion control market is extremely fragmented and represents a substantial, ongoing consolidation opportunity. Execution of WIN initiatives (lean manufacturing, supply chain, and strategic pricing) is expected to drive margin improvement. The company markets its products through direct sales employees and independent distributors in virtually every significant manufacturing, transportation and processing industry.
The company’s domestic and foreign operations are subject to significant competitive pressures. To compete successfully, the company’s Industrial Segment and Climate & Industrial Controls Segment must excel in terms of product quality and innovation, customer service, manufacturing and distribution capability, and price competitiveness.
Meanwhile, the Aerospace Segment must excel on the basis of technological and engineering capability, quality, delivery and service, and price competitiveness. The financial resources of certain competitors may put the company at a competitive disadvantage. Construction Spending continues to remain weak worldwide, except in Asia.
Parker-Hannifin Corporation 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.
We currently have a Neutral recommendation on Parker Hannifin.
PARKER HANNIFIN (PH): Free Stock Analysis Report
Zacks Investment Research
