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Parker-Hannifin (PH) Upgraded to 'Outperform' By BMO Capital, PT Lifted To $94

 November 08, 2012 01:57 PM

(By Balaseshan) BMO Capital Markets analyst Dave Shove upgraded rating of Parker-Hannifin Corp. (NYSE: PH) to "outperform" from "market perform" and raised his price target to $94 from $75.

Shove upgraded the stock on a combination of early signs that economic activity seems to be stabilizing and Parker shares are roughly 20 percent above discounting a recession, which doesn't seem likely in the next one to two years.

The analyst upgraded the stock because, in his view, investors are not appreciating the huge longer term improvement in Parker's returns, free cash flow, and operating margins, bringing them within striking distance of the most profitable industrial companies.

[Related -Parker-Hannifin Corporation (PH): How Parker Could Increase Operating Margins]

Shove's price target increases to $94 from $75, or 15 times his below-consensus fiscal 2013 EPS estimate of $6.25. Parker should be one of the earliest companies to feel any economic improvement pulse through orders and earnings within his coverage.

The analyst's revised price target of $94 is based on a more normal mid-cycle price-to-earnings multiple of 15 times as he believe that his $6.25 captures the near-term downside risks. With even moderate global economic growth, 2013 EPS could easily be closer to $7.00 versus his $6.25.

Shove maintained his 2013 and 2014 EPS estimates of $6.25 and $6.85, respectively, despite some early signs of economic stabilization. He believes there are more upside earnings risks than downside potential at current levels.

PH is trading up 1.70 percent at $78.77 on Thursday.

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