Parker-Hannifin Corporation (PH)

Conclusion

Parker-Hannifin Corporation makes motion and control technologies and systems for aerospace and defense, industrial equipment, transportation, energy, and HVAC and refrigeration markets. The shares trade at 956.59 USD, giving a market capitalisation of 120.62 billion USD and an enterprise value of 137.39 billion USD.

The verdict is overvalued. Today's price-to-earnings ratio is 32.4 against a ten-year median of 23.8, and EV/EBITDA is 22.5 against 15.3. The DCF gives 488.39 USD per share at a discount rate of 10.6%, and the fair value from historical multiples is 576.25 USD. The fair value band runs from 425.85 to 638.78 USD with a midpoint of 532.32 USD, a margin of safety of -44.4% at the current price. The reverse DCF implies revenue growth of 16.3% a year, against 8.4% revenue growth over five years and 11.0% free cash flow per share growth over five years.

What holds the case up is the quality of the business: free cash flow conversion of 103.5% over the trailing twelve months, eight of eight earnings beats, and a return on invested capital of 12.5% against a WACC of 9.75%. The weakest numbers are the valuation premiums, the current ratio of 0.94, and net debt to EBITDA of 2.75. If growth slows toward the delivered rate, the premium to historical multiples is the main risk to the case.

Financial health

Financial strength is green, held up by an Altman Z-score of 4.56 and interest coverage of 11.4x, and held back only by neutral readings on leverage. The current ratio is 0.94 and the quick ratio is 0.49, both below 1, and net debt to EBITDA is 2.75 on a trailing twelve-month basis. Debt to equity is 1.09.

The Altman Z-score of 4.56 sits in the safe zone. The model was designed for manufacturers, and this company is one, so the reading applies. Insolvency risk is low, about 0.2% by the estimate of the Ohlson model over one to two years. The estimate is dated to June 30, 2026.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 8 out of 9, free cash flow conversion of 103.5% on a trailing basis and 112.1% over five years, and a negative accrual ratio of -2.4%. Share count fell at a compound rate of -0.4% over five years, which reflects buybacks.

Stock-based compensation is 1.5% of revenue, and free cash flow after it is 3.53 billion USD. The company beat earnings expectations in all eight of the last eight quarters, with an average surprise of 7.1%. Estimate revisions are upward: the current-year estimate rose 6.0% over 90 days and the next-year estimate rose 6.7%, with three upgrades and no downgrades in the last 30 days. The Beneish M-score is not available, so manipulation risk cannot be checked on this basis.

Profitability

Profitability is green. The operating margin of 21.4% compares with a ten-year median of 16.8%, and the net margin of 16.6% compares with a median of 10.7%. The gross margin is 37.7% against a median of 27.4%. Operating margin stability over the year is 17.2%.

Return on invested capital is 12.5% against a WACC of 9.75%, a return on invested capital minus WACC value of 2.7%, which the model classes as creating value. The five-year median return on invested capital is 14.5%, so current returns sit below that median. Return on equity is 23.3%, but the DuPont split shows leverage is part of it: a net margin of 17.0%, an asset turnover of 0.70 and an equity multiplier of 2.00.

Growth

Growth is green. Revenue compound growth is 4.1% over three years, 8.4% over five years and 6.6% over ten years. Earnings per share compound at 21.1%, 16.4% and 17.1% over the same periods, and free cash flow per share at 15.0%, 11.0% and 14.7%.

Revenue grew in 8 of the last 10 comparable years. The recent three-year revenue rate is below the five-year rate, while earnings growth has been faster than revenue growth. The consensus next-year earnings growth estimate is 10.5%.

Valuation

Valuation is red. Every multiple trades above its own ten-year median: price-to-earnings 32.4 against 23.8 (premium 36.2%), EV/EBITDA 22.5 against 15.3 (premium 47.4%), price-to-free-cash-flow 31.3 against 18.3 (premium 70.7%), price-to-sales 5.38 against 2.53 (premium 112.9%), and price-to-book 7.55 against 4.55 (premium 66.0%). The free cash flow yield is 3.2%.

The DCF gives 488.39 USD per share, using a growth rate of 8.4%, a terminal growth rate of 2.5% and a discount rate of 10.6%. The fair value from historical multiples is 576.25 USD. The fair value band runs from 425.85 to 638.78 USD, with a midpoint of 532.32 USD and a margin of safety of -44.4% at 956.59 USD. The fair value is a range built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The reverse DCF implies 16.3% growth, well above the delivered rates shown above. The dividend yield is 1.4%, with a payout of 42.6% of free cash flow.

Risks

The main risk is valuation. If the price stays at its current premium, returns depend on growth well above what the company has delivered, and the reverse DCF implies 16.3% growth against 8.4% revenue growth over five years. Terminal value makes up 50.3% of the DCF, so the DCF result is sensitive to the discount rate and terminal growth assumptions.

Liquidity is thin: a current ratio of 0.94 and a quick ratio of 0.49. Net debt to EBITDA of 2.75 limits flexibility if earnings fall. A slowdown in aerospace or industrial demand would hit the earnings that support the multiples. The Beneish M-score, the debt maturity schedule and revenue by segment are not available, so this analysis cannot cover earnings manipulation risk, refinancing timing or segment mix.