EUR 850.00 For Business Accounts Only

Morningstar | Parker's Fiscal 3Q Results Don't Alter Our Long-Term View on the Stock

We think of Parker as a well-run, diversified industrial conglomerate with exposure to a wide variety of end markets. Over time, we believe the firm can achieve its goals of outpacing the industrial production index by 150 basis points and margin expansion on the heels of both its Win Strategy and recent acquisitions (Clarcor and Lorde). The current Win Strategy was borne out of CEO Tom Williams' and COO Lee Banks’ longtime experience both managing and operating Parker’s various businesses. In our view, the most important parts of this four-pronged strategy includes an emphasis on creating a decentralized and entrepreneurial culture that empowers its workers, a focus on both enhancing the customer experience and forwarding customer-driven innovation, driving profitable growth by leveraging the firm’s strong distribution network and engineering expertise, and pushing operating efficiency through product line simplification and lean manufacturing tools. The Clarcor acquisition brought with it filtration technologies that filled gaps within Parker’s then-existing product portfolio. Notably, prior to the acquisition, Clarcor was successfully reverse engineering some of Parker’s filtration technology in its own operations. With the acquisition, Parker also astutely fetched a revenue mix with over 80% exposure to the appreciably higher-margin and higher-growing aftermarket, which complemented Parker’s legacy OEM-centric filtration business.We also believe part of Parker’s strength lies in its broad breadth of motion and control technologies with a wide variety of applications, which includes hydraulics and pneumatics, fluid and gas handling, and sealing, among others. Importantly, according to Parker representatives, about 85% of the revenue from these technologies has intellectual property protection, which we believe helps cement Parker’s competitive position given both the long product life cycle and low reinvestment need nature of this business.Because of these factors, we expect Parker will grow its top line at a 3% organic compound annual growth rate over the medium term and expand segment operating margins by over 200 basis points from current levels by 2022.