Intrinsic value of Parker Hannifin - PH

Previous Close

$165.98

  Intrinsic Value

$252.26

stock screener

  Rating & Target

str. buy

+52%

  Value-price divergence*

-42%

Previous close

$165.98

 
Intrinsic value

$252.26

 
Up/down potential

+52%

 
Rating

str. buy

 
Value-price divergence*

-42%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 21.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.63
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  11,361
  12,531
  13,755
  15,034
  16,366
  17,754
  19,197
  20,698
  22,257
  23,878
  25,562
  27,313
  29,132
  31,025
  32,994
  35,044
  37,179
  39,403
  41,721
  44,139
  46,662
  49,296
  52,047
  54,921
  57,925
  61,066
  64,351
  67,789
  71,388
  75,155
  79,100
Variable operating expenses, $m
 
  9,556
  10,462
  11,407
  12,392
  13,418
  14,486
  15,595
  16,748
  17,947
  19,192
  20,196
  21,542
  22,941
  24,398
  25,913
  27,492
  29,136
  30,851
  32,639
  34,504
  36,452
  38,486
  40,611
  42,832
  45,155
  47,584
  50,127
  52,787
  55,573
  58,491
Fixed operating expenses, $m
 
  1,630
  1,670
  1,712
  1,755
  1,799
  1,844
  1,890
  1,937
  1,986
  2,035
  2,086
  2,138
  2,192
  2,247
  2,303
  2,360
  2,419
  2,480
  2,542
  2,605
  2,671
  2,737
  2,806
  2,876
  2,948
  3,021
  3,097
  3,174
  3,254
  3,335
Total operating expenses, $m
  10,246
  11,186
  12,132
  13,119
  14,147
  15,217
  16,330
  17,485
  18,685
  19,933
  21,227
  22,282
  23,680
  25,133
  26,645
  28,216
  29,852
  31,555
  33,331
  35,181
  37,109
  39,123
  41,223
  43,417
  45,708
  48,103
  50,605
  53,224
  55,961
  58,827
  61,826
Operating income, $m
  1,115
  1,345
  1,623
  1,915
  2,219
  2,537
  2,868
  3,213
  3,572
  3,945
  4,335
  5,030
  5,452
  5,892
  6,350
  6,828
  7,327
  7,847
  8,391
  8,959
  9,553
  10,174
  10,824
  11,504
  12,216
  12,963
  13,745
  14,566
  15,426
  16,328
  17,275
EBITDA, $m
  1,422
  1,794
  2,088
  2,395
  2,717
  3,052
  3,401
  3,765
  4,144
  4,539
  4,949
  5,376
  5,822
  6,285
  6,769
  7,272
  7,798
  8,347
  8,920
  9,518
  10,144
  10,799
  11,484
  12,200
  12,951
  13,737
  14,561
  15,425
  16,331
  17,281
  18,278
Interest expense (income), $m
  134
  119
  152
  187
  223
  260
  299
  340
  382
  426
  472
  519
  568
  619
  673
  728
  786
  846
  908
  973
  1,041
  1,112
  1,186
  1,264
  1,345
  1,429
  1,517
  1,610
  1,707
  1,808
  1,914
Earnings before tax, $m
  1,115
  1,226
  1,471
  1,728
  1,996
  2,276
  2,568
  2,873
  3,190
  3,519
  3,863
  4,511
  4,884
  5,273
  5,678
  6,100
  6,541
  7,001
  7,483
  7,985
  8,511
  9,061
  9,637
  10,240
  10,872
  11,534
  12,228
  12,956
  13,719
  14,520
  15,361
Tax expense, $m
  308
  331
  397
  466
  539
  615
  693
  776
  861
  950
  1,043
  1,218
  1,319
  1,424
  1,533
  1,647
  1,766
  1,890
  2,020
  2,156
  2,298
  2,447
  2,602
  2,765
  2,935
  3,114
  3,302
  3,498
  3,704
  3,920
  4,147
Net income, $m
  807
  895
  1,074
  1,261
  1,457
  1,662
  1,875
  2,097
  2,328
  2,569
  2,820
  3,293
  3,565
  3,849
  4,145
  4,453
  4,775
  5,111
  5,462
  5,829
  6,213
  6,615
  7,035
  7,475
  7,936
  8,420
  8,926
  9,458
  10,015
  10,600
  11,213

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,104
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  12,034
  10,954
  12,024
  13,141
  14,306
  15,519
  16,781
  18,092
  19,456
  20,872
  22,344
  23,875
  25,465
  27,120
  28,841
  30,633
  32,499
  34,443
  36,470
  38,583
  40,789
  43,091
  45,495
  48,007
  50,633
  53,379
  56,251
  59,256
  62,402
  65,695
  69,144
Adjusted assets (=assets-cash), $m
  9,930
  10,954
  12,024
  13,141
  14,306
  15,519
  16,781
  18,092
  19,456
  20,872
  22,344
  23,875
  25,465
  27,120
  28,841
  30,633
  32,499
  34,443
  36,470
  38,583
  40,789
  43,091
  45,495
  48,007
  50,633
  53,379
  56,251
  59,256
  62,402
  65,695
  69,144
Revenue / Adjusted assets
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
  1.144
Average production assets, $m
  2,584
  2,845
  3,122
  3,413
  3,715
  4,030
  4,358
  4,698
  5,052
  5,420
  5,803
  6,200
  6,613
  7,043
  7,490
  7,955
  8,440
  8,944
  9,471
  10,020
  10,592
  11,190
  11,815
  12,467
  13,149
  13,862
  14,608
  15,388
  16,205
  17,060
  17,956
Working capital, $m
  2,842
  1,216
  1,334
  1,458
  1,588
  1,722
  1,862
  2,008
  2,159
  2,316
  2,480
  2,649
  2,826
  3,009
  3,200
  3,399
  3,606
  3,822
  4,047
  4,281
  4,526
  4,782
  5,049
  5,327
  5,619
  5,923
  6,242
  6,576
  6,925
  7,290
  7,673
Total debt, $m
  3,014
  3,387
  4,152
  4,951
  5,784
  6,651
  7,553
  8,491
  9,466
  10,479
  11,531
  12,625
  13,763
  14,946
  16,176
  17,458
  18,792
  20,182
  21,631
  23,142
  24,719
  26,365
  28,084
  29,880
  31,758
  33,721
  35,775
  37,923
  40,172
  42,527
  44,993
Total liabilities, $m
  7,459
  7,832
  8,597
  9,396
  10,229
  11,096
  11,998
  12,936
  13,911
  14,924
  15,976
  17,070
  18,208
  19,391
  20,621
  21,903
  23,237
  24,627
  26,076
  27,587
  29,164
  30,810
  32,529
  34,325
  36,203
  38,166
  40,220
  42,368
  44,617
  46,972
  49,438
Total equity, $m
  4,575
  3,122
  3,427
  3,745
  4,077
  4,423
  4,782
  5,156
  5,545
  5,949
  6,368
  6,804
  7,258
  7,729
  8,220
  8,730
  9,262
  9,816
  10,394
  10,996
  11,625
  12,281
  12,966
  13,682
  14,430
  15,213
  16,032
  16,888
  17,784
  18,723
  19,706
Total liabilities and equity, $m
  12,034
  10,954
  12,024
  13,141
  14,306
  15,519
  16,780
  18,092
  19,456
  20,873
  22,344
  23,874
  25,466
  27,120
  28,841
  30,633
  32,499
  34,443
  36,470
  38,583
  40,789
  43,091
  45,495
  48,007
  50,633
  53,379
  56,252
  59,256
  62,401
  65,695
  69,144
Debt-to-equity ratio
  0.659
  1.080
  1.210
  1.320
  1.420
  1.500
  1.580
  1.650
  1.710
  1.760
  1.810
  1.860
  1.900
  1.930
  1.970
  2.000
  2.030
  2.060
  2.080
  2.100
  2.130
  2.150
  2.170
  2.180
  2.200
  2.220
  2.230
  2.250
  2.260
  2.270
  2.280
Adjusted equity ratio
  0.249
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  807
  895
  1,074
  1,261
  1,457
  1,662
  1,875
  2,097
  2,328
  2,569
  2,820
  3,293
  3,565
  3,849
  4,145
  4,453
  4,775
  5,111
  5,462
  5,829
  6,213
  6,615
  7,035
  7,475
  7,936
  8,420
  8,926
  9,458
  10,015
  10,600
  11,213
Depreciation, amort., depletion, $m
  307
  449
  465
  481
  498
  515
  534
  553
  573
  593
  614
  346
  369
  393
  418
  444
  471
  500
  529
  560
  592
  625
  660
  696
  735
  774
  816
  860
  905
  953
  1,003
Funds from operations, $m
  1,208
  1,344
  1,538
  1,742
  1,955
  2,177
  2,409
  2,650
  2,901
  3,162
  3,435
  3,640
  3,935
  4,242
  4,563
  4,897
  5,246
  5,611
  5,991
  6,389
  6,805
  7,240
  7,695
  8,172
  8,671
  9,194
  9,742
  10,317
  10,920
  11,553
  12,217
Change in working capital, $m
  38
  114
  119
  124
  129
  135
  140
  146
  151
  157
  163
  170
  177
  184
  191
  199
  207
  216
  225
  235
  245
  255
  267
  279
  291
  305
  319
  333
  349
  365
  383
Cash from operations, $m
  1,170
  1,230
  1,420
  1,618
  1,826
  2,043
  2,269
  2,504
  2,750
  3,005
  3,271
  3,470
  3,758
  4,059
  4,372
  4,699
  5,039
  5,395
  5,766
  6,154
  6,560
  6,984
  7,428
  7,893
  8,380
  8,889
  9,424
  9,984
  10,571
  11,187
  11,834
Maintenance CAPEX, $m
  0
  -144
  -159
  -174
  -191
  -208
  -225
  -243
  -262
  -282
  -303
  -324
  -346
  -369
  -393
  -418
  -444
  -471
  -500
  -529
  -560
  -592
  -625
  -660
  -696
  -735
  -774
  -816
  -860
  -905
  -953
New CAPEX, $m
  -149
  -261
  -278
  -290
  -302
  -315
  -328
  -341
  -354
  -368
  -382
  -397
  -413
  -430
  -447
  -465
  -485
  -505
  -526
  -549
  -573
  -598
  -624
  -652
  -682
  -713
  -746
  -780
  -817
  -855
  -896
Cash from investing activities, $m
  -265
  -405
  -437
  -464
  -493
  -523
  -553
  -584
  -616
  -650
  -685
  -721
  -759
  -799
  -840
  -883
  -929
  -976
  -1,026
  -1,078
  -1,133
  -1,190
  -1,249
  -1,312
  -1,378
  -1,448
  -1,520
  -1,596
  -1,677
  -1,760
  -1,849
Free cash flow, $m
  905
  825
  983
  1,154
  1,333
  1,520
  1,716
  1,920
  2,133
  2,355
  2,586
  2,748
  2,999
  3,260
  3,532
  3,815
  4,110
  4,419
  4,740
  5,077
  5,428
  5,795
  6,179
  6,581
  7,001
  7,442
  7,904
  8,387
  8,895
  9,427
  9,985
Issuance/(repayment) of debt, $m
  86
  735
  765
  799
  833
  867
  902
  938
  975
  1,013
  1,053
  1,094
  1,137
  1,183
  1,231
  1,281
  1,334
  1,390
  1,449
  1,511
  1,577
  1,646
  1,719
  1,796
  1,878
  1,963
  2,054
  2,149
  2,249
  2,355
  2,466
Issuance/(repurchase) of shares, $m
  -557
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -460
  735
  765
  799
  833
  867
  902
  938
  975
  1,013
  1,053
  1,094
  1,137
  1,183
  1,231
  1,281
  1,334
  1,390
  1,449
  1,511
  1,577
  1,646
  1,719
  1,796
  1,878
  1,963
  2,054
  2,149
  2,249
  2,355
  2,466
Total cash flow (excl. dividends), $m
  383
  1,560
  1,748
  1,952
  2,165
  2,387
  2,618
  2,858
  3,108
  3,368
  3,639
  3,842
  4,136
  4,443
  4,762
  5,096
  5,445
  5,809
  6,189
  6,588
  7,005
  7,441
  7,898
  8,377
  8,879
  9,405
  9,957
  10,536
  11,144
  11,782
  12,451
Retained Cash Flow (-), $m
  529
  -289
  -305
  -318
  -332
  -346
  -360
  -374
  -389
  -404
  -420
  -436
  -453
  -472
  -491
  -511
  -532
  -554
  -578
  -602
  -629
  -656
  -685
  -716
  -748
  -783
  -819
  -856
  -896
  -939
  -983
Prev. year cash balance distribution, $m
 
  1,742
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,014
  1,443
  1,634
  1,833
  2,042
  2,258
  2,484
  2,719
  2,964
  3,219
  3,406
  3,683
  3,971
  4,272
  4,585
  4,913
  5,255
  5,612
  5,985
  6,376
  6,785
  7,213
  7,661
  8,130
  8,623
  9,139
  9,680
  10,247
  10,843
  11,468
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  2,889
  1,321
  1,422
  1,510
  1,582
  1,639
  1,678
  1,700
  1,703
  1,688
  1,618
  1,572
  1,510
  1,434
  1,346
  1,248
  1,143
  1,033
  922
  810
  702
  598
  502
  414
  335
  267
  208
  159
  118
  86
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Parker-Hannifin Corporation manufactures and sells motion and control technologies and systems for various mobile, industrial, and aerospace markets worldwide. The company operates in two segments, Diversified Industrial and Aerospace Systems. The Diversified Industrial segment provides pneumatic, fluidic, and electromechanical components and systems; static and dynamic sealing devices; filters, systems, and diagnostics solutions to monitor and remove contaminants from fuel, air, oil, water, and other liquids and gases; connectors, which control, transmit, and contain fluid; hydraulic components and systems for builders and users of industrial and mobile machinery and equipment; and critical flow components for process instrumentation, healthcare, and ultra-high-purity applications, as well as components for use in refrigeration and air conditioning systems, and in fluid control applications for processing, fuel dispensing, beverage dispensing, and mobile emissions. This segment sells its products to original equipment manufacturers and their replacement markets in manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural, and military machinery and equipment industries. The Aerospace Systems segment offers products for use in commercial and military airframe and engine programs, including control actuation systems and components, engine systems and components, fluid conveyance systems and components, fuel systems and components, fuel tank inserting systems, hydraulic systems and components, lubrication components, power conditioning and management systems, thermal management, and wheels and brakes. This segment markets its products directly to original equipment manufacturers and end users. The company markets its products through direct-sales employees, independent distributors, and sales representatives. Parker-Hannifin Corporation was founded in 1918 and is headquartered in Cleveland, Ohio.

FINANCIAL RATIOS  of  Parker Hannifin (PH)

Valuation Ratios
P/E Ratio 27.6
Price to Sales 2
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 19
Price to Free Cash Flow 21.8
Growth Rates
Sales Growth Rate -10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31%
Cap. Spend. - 3 Yr. Gr. Rate -10.9%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 58%
Total Debt to Equity 65.9%
Interest Coverage 9
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 8.1%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 16.7%
Return On Equity - 3 Yr. Avg. 16.9%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 23%
Gross Margin - 3 Yr. Avg. 23.5%
EBITDA Margin 13.7%
EBITDA Margin - 3 Yr. Avg. 14.4%
Operating Margin 9.8%
Oper. Margin - 3 Yr. Avg. 11%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 11%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 42.4%

PH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PH stock intrinsic value calculation we used $11361 million for the last fiscal year's total revenue generated by Parker Hannifin. The default revenue input number comes from 2016 income statement of Parker Hannifin. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PH stock valuation model: a) initial revenue growth rate of 10.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for PH is calculated based on our internal credit rating of Parker Hannifin, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Parker Hannifin.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PH stock the variable cost ratio is equal to 76.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1590 million in the base year in the intrinsic value calculation for PH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.5% for Parker Hannifin.

Corporate tax rate of 27% is the nominal tax rate for Parker Hannifin. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PH are equal to 22.7%.

Life of production assets of 17.9 years is the average useful life of capital assets used in Parker Hannifin operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PH is equal to 9.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4575 million for Parker Hannifin - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 132.164 million for Parker Hannifin is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Parker Hannifin at the current share price and the inputted number of shares is $21.9 billion.

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COMPANY NEWS

▶ Plant shut down means 200 layoffs in eastern N.C.   [08:59AM  American City Business Journals]
▶ Motion Control Industrial Stock May Pump Up New Breakout   [Jul-11-17 04:30PM  Investor's Business Daily]
▶ Parker-Hannifin beats Street 3Q forecasts   [07:58AM  Associated Press]
▶ Parker Declares Quarterly Cash Dividend   [Apr-20-17 05:40PM  GlobeNewswire]
▶ Cramer: We Have Nothing to Distinguish the Stocks Right Now   [Apr-03-17 07:01PM  TheStreet.com]
▶ New Breakout Stocks Zacks Rank #1 (Strong Buy)   [Apr-01-17 12:12PM  Zacks]
▶ Bull of the Day: Parker Hannifin (PH)   [Mar-31-17 10:53AM  Zacks]
▶ Did Rockwell Automation Really Just Have a Lucky Quarter?   [Mar-28-17 12:47PM  at Motley Fool]
▶ Parker Hannifin Celebrates 100 Years   [07:30AM  GlobeNewswire]
Stock chart of PH Financial statements of PH Annual reports of PH
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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