Parker-Hannifin (NYSE:PH) has been prominent in the news the past week as the company reported quarterly results while it announced a sizeable acquisition as well. While the deal makes sense and overall valuation multiples are very reasonable, I am not that impressed with the willingness to take on quite some leverage, certainly at this late stage in the economic cycle, despite an excellent +60-year dividend track record.
The Term Play
Parker-Hannifin has been in business for little over 100 years and ever since has grown to become a dominant player across a wide range of differentiated segments. The company has been adopting its "Win" strategy. This strategy is based on a decentralised approach, focuses on engineered products with IP, long product life cycles and low capital spending requirements. Activities in which the company is involved include pneumatics, electromechanical, filtration, fluids & gas handling, process control, climate control and sealing.
This strategy has served long-term investors well as this was just a $3 stock in 1980 and a $20 stock in the year 2000. Currently trading at $170 per share, compounded annual returns come in at 10% and 12%, respectively for both time periods. Note that this is before taking into account the impact of dividends and the potential for reinvesting those dividends.
Like most industrial peers shares fell in the early 2016s, in part driven by the decline in the US energy/shale industry as concerns about the strong dollar hurt industrial names as well. Since then shares rose from $90 to peak above the $200-mark in early 2018, driven by the outcome of the election and potential good implications for US industrials. From that moment shares have been trading in a range of roughly $150-200 per share, currently exchanging hands at $170.
The Current Performance
The company reported the results
