Hidden Values at Parker Hannifin

09/18/2013 8:00 am EST


Charles Mizrahi

Editor, Insider Alert

The latest featured stock from our Prime Time Portfolio is a leading worldwide-diversified maker of motion and control technologies and systems for mobile, industrial, and aerospace markets, notes Charles Mizrahi of Hidden Values Alert.

Parker Hannifin (PH) generates strong revenue from its aerospace division, while its primary industrial segment is lagging.

Overall, we like the company's balanced portfolio. PH had solid order rates this past year with backlog of $3.6 billion between its industrial and aerospace segments.

The company's Industrial International division produced weaker figures in recent years. However, PH's diversity in terms of business structure and geographic exposure allows the company to remain profitable, despite slowdowns in some of its markets.

We also like the company's growth strategy, which is driven by increased investment in emerging markets and innovation.

Market expansion in terms of both, its product line, and geographic exposure is crucial to the company's success going forward. R&D of $400 million in 2013 (and more than $350 million in 2012 and 2011) exhibits the PH's focus on long-term growth.

The company had a free cash flow of $1.3 billion in 2012. After paying all of its expenses and allocating money for capital expenditures (more than $200 million of capex in 2012), the company was still left with greater than a billion dollars.

This gives the company several options, which it has taken advantage of. In the past two years PH has allocated $1.15 billion to share repurchases.

Parker Hannifin has reduced shares outstanding by more than ten million since 2011. It has also returned nearly $600 million in dividends during the same period. Its $1.80 annual dividend represents a 1.91% dividend yield.

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