Intrinsic value of Parker Hannifin - PH

Previous Close

$169.69

  Intrinsic Value

$362.58

stock screener

  Rating & Target

str. buy

+114%

  Value-price divergence*

+148%

Previous close

$169.69

 
Intrinsic value

$362.58

 
Up/down potential

+114%

 
Rating

str. buy

 
Value-price divergence*

+148%

*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 2017), $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 22.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.88
  18.20
  16.88
  15.69
  14.62
  13.66
  12.79
  12.02
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
Revenue, $m
  12,029
  14,218
  16,618
  19,226
  22,037
  25,048
  28,253
  31,647
  35,228
  38,991
  42,934
  47,057
  51,359
  55,842
  60,507
  65,360
  70,404
  75,647
  81,094
  86,756
  92,640
  98,759
  105,123
  111,746
  118,641
  125,822
  133,305
  141,107
  149,246
  157,739
  166,607
Variable operating expenses, $m
 
  9,581
  11,104
  12,759
  14,543
  16,453
  18,487
  20,641
  22,913
  25,300
  27,803
  29,860
  32,590
  35,435
  38,395
  41,474
  44,675
  48,002
  51,459
  55,051
  58,785
  62,668
  66,706
  70,909
  75,284
  79,841
  84,589
  89,540
  94,705
  100,094
  105,721
Fixed operating expenses, $m
 
  2,635
  2,701
  2,769
  2,838
  2,909
  2,982
  3,056
  3,133
  3,211
  3,291
  3,373
  3,458
  3,544
  3,633
  3,724
  3,817
  3,912
  4,010
  4,110
  4,213
  4,318
  4,426
  4,537
  4,650
  4,766
  4,886
  5,008
  5,133
  5,261
  5,393
Total operating expenses, $m
  10,701
  12,216
  13,805
  15,528
  17,381
  19,362
  21,469
  23,697
  26,046
  28,511
  31,094
  33,233
  36,048
  38,979
  42,028
  45,198
  48,492
  51,914
  55,469
  59,161
  62,998
  66,986
  71,132
  75,446
  79,934
  84,607
  89,475
  94,548
  99,838
  105,355
  111,114
Operating income, $m
  1,329
  2,002
  2,813
  3,699
  4,657
  5,686
  6,785
  7,951
  9,183
  10,479
  11,840
  13,823
  15,311
  16,863
  18,479
  20,162
  21,912
  23,733
  25,626
  27,594
  29,642
  31,773
  33,991
  36,300
  38,707
  41,215
  43,830
  46,559
  49,408
  52,384
  55,493
EBITDA, $m
  1,684
  2,712
  3,549
  4,462
  5,450
  6,511
  7,644
  8,846
  10,116
  11,453
  12,856
  14,324
  15,858
  17,457
  19,123
  20,858
  22,662
  24,538
  26,489
  28,518
  30,628
  32,824
  35,109
  37,490
  39,969
  42,554
  45,249
  48,061
  50,997
  54,063
  57,266
Interest expense (income), $m
  0
  173
  232
  297
  368
  444
  526
  612
  704
  801
  903
  1,010
  1,122
  1,238
  1,359
  1,486
  1,617
  1,754
  1,896
  2,043
  2,196
  2,356
  2,521
  2,694
  2,873
  3,060
  3,254
  3,457
  3,668
  3,888
  4,118
Earnings before tax, $m
  1,329
  1,829
  2,581
  3,401
  4,289
  5,242
  6,259
  7,338
  8,478
  9,678
  10,937
  12,813
  14,190
  15,625
  17,120
  18,676
  20,295
  21,979
  23,730
  25,551
  27,446
  29,417
  31,469
  33,607
  35,833
  38,155
  40,576
  43,103
  45,740
  48,495
  51,375
Tax expense, $m
  345
  494
  697
  918
  1,158
  1,415
  1,690
  1,981
  2,289
  2,613
  2,953
  3,460
  3,831
  4,219
  4,622
  5,043
  5,480
  5,934
  6,407
  6,899
  7,410
  7,943
  8,497
  9,074
  9,675
  10,302
  10,956
  11,638
  12,350
  13,094
  13,871
Net income, $m
  983
  1,335
  1,884
  2,483
  3,131
  3,827
  4,569
  5,357
  6,189
  7,065
  7,984
  9,354
  10,358
  11,406
  12,498
  13,634
  14,815
  16,045
  17,323
  18,652
  20,035
  21,474
  22,973
  24,533
  26,158
  27,853
  29,620
  31,465
  33,390
  35,402
  37,503

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  924
  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
  15,490
  17,213
  20,119
  23,276
  26,680
  30,324
  34,204
  38,314
  42,648
  47,204
  51,978
  56,970
  62,178
  67,605
  73,254
  79,128
  85,235
  91,582
  98,177
  105,031
  112,155
  119,563
  127,268
  135,286
  143,633
  152,327
  161,387
  170,832
  180,685
  190,968
  201,703
Adjusted assets (=assets-cash), $m
  14,566
  17,213
  20,119
  23,276
  26,680
  30,324
  34,204
  38,314
  42,648
  47,204
  51,978
  56,970
  62,178
  67,605
  73,254
  79,128
  85,235
  91,582
  98,177
  105,031
  112,155
  119,563
  127,268
  135,286
  143,633
  152,327
  161,387
  170,832
  180,685
  190,968
  201,703
Revenue / Adjusted assets
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
Average production assets, $m
  2,399
  2,829
  3,307
  3,826
  4,385
  4,985
  5,622
  6,298
  7,010
  7,759
  8,544
  9,364
  10,220
  11,112
  12,041
  13,007
  14,010
  15,054
  16,138
  17,264
  18,435
  19,653
  20,920
  22,237
  23,609
  25,039
  26,528
  28,080
  29,700
  31,390
  33,155
Working capital, $m
  1,384
  1,735
  2,027
  2,346
  2,689
  3,056
  3,447
  3,861
  4,298
  4,757
  5,238
  5,741
  6,266
  6,813
  7,382
  7,974
  8,589
  9,229
  9,893
  10,584
  11,302
  12,049
  12,825
  13,633
  14,474
  15,350
  16,263
  17,215
  18,208
  19,244
  20,326
Total debt, $m
  5,870
  6,641
  8,498
  10,515
  12,690
  15,019
  17,498
  20,125
  22,894
  25,805
  28,856
  32,046
  35,374
  38,842
  42,451
  46,205
  50,107
  54,163
  58,377
  62,757
  67,309
  72,043
  76,966
  82,090
  87,423
  92,979
  98,768
  104,804
  111,100
  117,670
  124,530
Total liabilities, $m
  10,228
  10,999
  12,856
  14,873
  17,048
  19,377
  21,856
  24,483
  27,252
  30,163
  33,214
  36,404
  39,732
  43,200
  46,809
  50,563
  54,465
  58,521
  62,735
  67,115
  71,667
  76,401
  81,324
  86,448
  91,781
  97,337
  103,126
  109,162
  115,458
  122,028
  128,888
Total equity, $m
  5,262
  6,214
  7,263
  8,403
  9,631
  10,947
  12,348
  13,831
  15,396
  17,041
  18,764
  20,566
  22,446
  24,405
  26,445
  28,565
  30,770
  33,061
  35,442
  37,916
  40,488
  43,162
  45,944
  48,838
  51,851
  54,990
  58,261
  61,670
  65,227
  68,939
  72,815
Total liabilities and equity, $m
  15,490
  17,213
  20,119
  23,276
  26,679
  30,324
  34,204
  38,314
  42,648
  47,204
  51,978
  56,970
  62,178
  67,605
  73,254
  79,128
  85,235
  91,582
  98,177
  105,031
  112,155
  119,563
  127,268
  135,286
  143,632
  152,327
  161,387
  170,832
  180,685
  190,967
  201,703
Debt-to-equity ratio
  1.116
  1.070
  1.170
  1.250
  1.320
  1.370
  1.420
  1.460
  1.490
  1.510
  1.540
  1.560
  1.580
  1.590
  1.610
  1.620
  1.630
  1.640
  1.650
  1.660
  1.660
  1.670
  1.680
  1.680
  1.690
  1.690
  1.700
  1.700
  1.700
  1.710
  1.710
Adjusted equity ratio
  0.298
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  983
  1,335
  1,884
  2,483
  3,131
  3,827
  4,569
  5,357
  6,189
  7,065
  7,984
  9,354
  10,358
  11,406
  12,498
  13,634
  14,815
  16,045
  17,323
  18,652
  20,035
  21,474
  22,973
  24,533
  26,158
  27,853
  29,620
  31,465
  33,390
  35,402
  37,503
Depreciation, amort., depletion, $m
  355
  710
  736
  763
  793
  825
  859
  895
  934
  974
  1,016
  501
  547
  594
  644
  696
  749
  805
  863
  923
  986
  1,051
  1,119
  1,189
  1,263
  1,339
  1,419
  1,502
  1,588
  1,679
  1,773
Funds from operations, $m
  1,226
  2,045
  2,620
  3,246
  3,924
  4,652
  5,428
  6,252
  7,123
  8,039
  9,000
  9,855
  10,905
  12,000
  13,141
  14,329
  15,565
  16,850
  18,186
  19,576
  21,021
  22,525
  24,091
  25,722
  27,421
  29,192
  31,039
  32,966
  34,979
  37,080
  39,276
Change in working capital, $m
  -76
  267
  293
  318
  343
  367
  391
  414
  437
  459
  481
  503
  525
  547
  569
  592
  615
  640
  665
  691
  718
  746
  776
  808
  841
  876
  913
  952
  993
  1,036
  1,082
Cash from operations, $m
  1,302
  1,778
  2,327
  2,928
  3,581
  4,285
  5,037
  5,838
  6,686
  7,580
  8,519
  9,352
  10,380
  11,454
  12,572
  13,737
  14,949
  16,210
  17,521
  18,885
  20,303
  21,779
  23,315
  24,914
  26,580
  28,316
  30,126
  32,015
  33,986
  36,044
  38,195
Maintenance CAPEX, $m
  0
  -128
  -151
  -177
  -205
  -235
  -267
  -301
  -337
  -375
  -415
  -457
  -501
  -547
  -594
  -644
  -696
  -749
  -805
  -863
  -923
  -986
  -1,051
  -1,119
  -1,189
  -1,263
  -1,339
  -1,419
  -1,502
  -1,588
  -1,679
New CAPEX, $m
  -204
  -430
  -478
  -519
  -559
  -599
  -638
  -676
  -713
  -749
  -785
  -820
  -856
  -892
  -928
  -966
  -1,004
  -1,043
  -1,084
  -1,127
  -1,171
  -1,218
  -1,267
  -1,318
  -1,372
  -1,429
  -1,489
  -1,553
  -1,620
  -1,690
  -1,765
Cash from investing activities, $m
  -3,365
  -558
  -629
  -696
  -764
  -834
  -905
  -977
  -1,050
  -1,124
  -1,200
  -1,277
  -1,357
  -1,439
  -1,522
  -1,610
  -1,700
  -1,792
  -1,889
  -1,990
  -2,094
  -2,204
  -2,318
  -2,437
  -2,561
  -2,692
  -2,828
  -2,972
  -3,122
  -3,278
  -3,444
Free cash flow, $m
  -2,063
  1,219
  1,698
  2,232
  2,817
  3,451
  4,133
  4,862
  5,637
  6,456
  7,319
  8,074
  9,023
  10,015
  11,050
  12,128
  13,250
  14,418
  15,632
  16,895
  18,209
  19,575
  20,997
  22,477
  24,019
  25,624
  27,298
  29,043
  30,865
  32,766
  34,751
Issuance/(repayment) of debt, $m
  2,464
  1,695
  1,857
  2,017
  2,175
  2,329
  2,479
  2,626
  2,770
  2,911
  3,051
  3,189
  3,328
  3,468
  3,609
  3,754
  3,902
  4,055
  4,214
  4,380
  4,552
  4,733
  4,924
  5,123
  5,334
  5,555
  5,789
  6,036
  6,296
  6,570
  6,860
Issuance/(repurchase) of shares, $m
  -336
  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  
  2,128
  1,695
  1,857
  2,017
  2,175
  2,329
  2,479
  2,626
  2,770
  2,911
  3,051
  3,189
  3,328
  3,468
  3,609
  3,754
  3,902
  4,055
  4,214
  4,380
  4,552
  4,733
  4,924
  5,123
  5,334
  5,555
  5,789
  6,036
  6,296
  6,570
  6,860
Total cash flow (excl. dividends), $m
  8
  2,915
  3,555
  4,250
  4,992
  5,780
  6,612
  7,488
  8,406
  9,367
  10,370
  11,264
  12,351
  13,483
  14,659
  15,882
  17,152
  18,473
  19,846
  21,275
  22,761
  24,309
  25,921
  27,601
  29,352
  31,180
  33,087
  35,079
  37,161
  39,336
  41,611
Retained Cash Flow (-), $m
  -687
  -952
  -1,049
  -1,140
  -1,229
  -1,316
  -1,401
  -1,484
  -1,565
  -1,645
  -1,723
  -1,802
  -1,880
  -1,959
  -2,039
  -2,121
  -2,205
  -2,291
  -2,381
  -2,474
  -2,572
  -2,674
  -2,782
  -2,894
  -3,013
  -3,139
  -3,271
  -3,410
  -3,557
  -3,712
  -3,876
Prev. year cash balance distribution, $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 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
 
  1,963
  2,506
  3,110
  3,763
  4,464
  5,212
  6,004
  6,842
  7,722
  8,646
  9,462
  10,471
  11,524
  12,620
  13,761
  14,948
  16,182
  17,466
  18,801
  20,190
  21,635
  23,139
  24,706
  26,339
  28,041
  29,817
  31,669
  33,604
  35,624
  37,736
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  1,834
  2,174
  2,488
  2,756
  2,968
  3,119
  3,205
  3,227
  3,185
  3,084
  2,885
  2,696
  2,472
  2,224
  1,964
  1,700
  1,443
  1,199
  976
  777
  605
  459
  340
  246
  173
  118
  78
  50
  31
  19
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 is a manufacturer of motion and control technologies and systems, providing precision engineered solutions for a range of mobile, industrial and aerospace markets. The Company operates through segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. The Diversified Industrial Segment consists of Automation Group, Engineered Materials Group, Filtration Group, Fluid Connectors Group, Hydraulics Group and Instrumentation Group. The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on domestic commercial, military and general aviation aircrafts.

FINANCIAL RATIOS  of  Parker Hannifin (PH)

Valuation Ratios
P/E Ratio 23
Price to Sales 1.9
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 17.4
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate 5.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36.9%
Cap. Spend. - 3 Yr. Gr. Rate -1.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 92.4%
Total Debt to Equity 111.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 7.7%
Return On Total Capital 10.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.9%
Return On Equity 20%
Return On Equity - 3 Yr. Avg. 18%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 23.6%
Gross Margin - 3 Yr. Avg. 23.6%
EBITDA Margin 14%
EBITDA Margin - 3 Yr. Avg. 14.1%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 10.7%
Pre-Tax Margin 11%
Pre-Tax Margin - 3 Yr. Avg. 10.7%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 7.7%
Effective Tax Rate 26%
Eff/ Tax Rate - 3 Yr. Avg. 27.6%
Payout Ratio 35.1%

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 $12029 million for the last fiscal year's total revenue generated by Parker Hannifin. The default revenue input number comes from 2017 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 18.2% 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 7%, 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 68.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2571 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 3.5% 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 19.9%.

Life of production assets of 18.7 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 12.2%. 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 - $5262 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 133.821 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 $22.7 billion.

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COMPANY NEWS

▶ IBD Rating Upgrades: Parker-Hannifin Shows Improved Technical Strength   [Sep-11-17 03:00AM  Investor's Business Daily]
▶ Stocks With Rising Relative Strength: Parker-Hannifin   [03:00AM  Investor's Business Daily]
▶ Parker Declares Quarterly Cash Dividend   [Aug-17-17 05:05PM  GlobeNewswire]
▶ Parker-Hannifin beats 4Q profit forecasts   [Aug-03-17 05:35PM  Associated Press]
▶ 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]
Financial statements 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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