Intrinsic value of Parker Hannifin - PH

Previous Close

$191.86

  Intrinsic Value

$354.66

stock screener

  Rating & Target

str. buy

+85%

Previous close

$191.86

 
Intrinsic value

$354.66

 
Up/down potential

+85%

 
Rating

str. buy

*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 25.6

 

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
  2,747
  3,589
  4,509
  5,504
  6,573
  7,713
  8,923
  10,202
  11,548
  12,961
  14,439
  15,983
  17,594
  19,271
  21,017
  22,833
  24,722
  26,687
  28,729
  30,854
  33,065
  35,366
  37,762
  40,259
  42,861
  45,574
  48,406
  51,361
  54,448
  57,673
Interest expense (income), $m
  132
  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
  3,368
  3,981
  4,653
  5,383
  6,170
  7,013
  7,911
  8,861
  9,864
  10,917
  12,022
  13,176
  14,381
  15,636
  16,942
  18,301
  19,713
  21,181
  22,706
  24,292
  25,939
  27,653
  29,435
  31,289
  33,219
  35,230
  37,325
  39,510
  41,789
  44,167
  46,650
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
  745
  776
  810
  847
  886
  928
  973
  1,020
  1,069
  1,120
  616
  672
  731
  792
  855
  921
  990
  1,061
  1,135
  1,212
  1,292
  1,375
  1,462
  1,552
  1,646
  1,744
  1,846
  1,953
  2,064
  2,180
Funds from operations, $m
  1,181
  2,080
  2,660
  3,293
  3,978
  4,713
  5,497
  6,330
  7,209
  8,134
  9,105
  9,970
  11,030
  12,137
  13,289
  14,489
  15,737
  17,034
  18,384
  19,787
  21,247
  22,767
  24,348
  25,995
  27,711
  29,499
  31,365
  33,311
  35,343
  37,466
  39,683
Change in working capital, $m
  -121
  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
  1,813
  2,367
  2,975
  3,635
  4,346
  5,106
  5,915
  6,772
  7,675
  8,623
  9,467
  10,506
  11,590
  12,720
  13,897
  15,121
  16,395
  17,719
  19,097
  20,530
  22,020
  23,572
  25,187
  26,870
  28,623
  30,452
  32,359
  34,350
  36,429
  38,601
Maintenance CAPEX, $m
  0
  -157
  -186
  -217
  -252
  -288
  -328
  -370
  -414
  -461
  -510
  -562
  -616
  -672
  -731
  -792
  -855
  -921
  -990
  -1,061
  -1,135
  -1,212
  -1,292
  -1,375
  -1,462
  -1,552
  -1,646
  -1,744
  -1,846
  -1,953
  -2,064
New CAPEX, $m
  -204
  -613
  -672
  -730
  -787
  -843
  -897
  -950
  -1,003
  -1,054
  -1,104
  -1,154
  -1,205
  -1,255
  -1,306
  -1,359
  -1,412
  -1,468
  -1,525
  -1,585
  -1,648
  -1,713
  -1,782
  -1,854
  -1,930
  -2,011
  -2,095
  -2,185
  -2,279
  -2,378
  -2,483
Cash from investing activities, $m
  -3,365
  -770
  -858
  -947
  -1,039
  -1,131
  -1,225
  -1,320
  -1,417
  -1,515
  -1,614
  -1,716
  -1,821
  -1,927
  -2,037
  -2,151
  -2,267
  -2,389
  -2,515
  -2,646
  -2,783
  -2,925
  -3,074
  -3,229
  -3,392
  -3,563
  -3,741
  -3,929
  -4,125
  -4,331
  -4,547
Free cash flow, $m
  -2,063
  1,042
  1,509
  2,027
  2,596
  3,215
  3,881
  4,595
  5,355
  6,160
  7,009
  7,750
  8,685
  9,663
  10,683
  11,746
  12,854
  14,006
  15,204
  16,451
  17,747
  19,095
  20,497
  21,957
  23,477
  25,060
  26,710
  28,430
  30,225
  32,098
  34,055
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
  2,738
  3,366
  4,045
  4,771
  5,543
  6,361
  7,221
  8,125
  9,071
  10,060
  10,940
  12,013
  13,131
  14,292
  15,500
  16,756
  18,061
  19,419
  20,830
  22,299
  23,828
  25,421
  27,080
  28,811
  30,616
  32,499
  34,466
  36,521
  38,669
  40,915
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
 
  1,786
  2,317
  2,905
  3,542
  4,228
  4,960
  5,738
  6,560
  7,427
  8,336
  9,138
  10,133
  11,171
  12,253
  13,380
  14,551
  15,770
  17,038
  18,356
  19,727
  21,154
  22,639
  24,186
  25,797
  27,477
  29,229
  31,056
  32,964
  34,957
  37,039
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  1,670
  2,015
  2,332
  2,605
  2,826
  2,989
  3,089
  3,126
  3,100
  3,015
  2,831
  2,657
  2,447
  2,211
  1,960
  1,704
  1,452
  1,212
  991
  793
  620
  473
  352
  256
  181
  124
  83
  54
  34
  20
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 26
Price to Sales 2.1
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 23.3
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 11
Management Effectiveness
Return On Assets 7.9%
Ret/ On Assets - 3 Yr. Avg. 7.9%
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 23.9%
Gross Margin - 3 Yr. Avg. 23.7%
EBITDA Margin 15.1%
EBITDA Margin - 3 Yr. Avg. 14.5%
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 6.9%, 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 28%.

Life of production assets of 21.4 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 133.225 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 $25.6 billion.

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COMPANY NEWS

▶ 36 Top Funds Just Bought Shares In This Potential Breakout Stock   [Dec-12-17 04:08PM  Investor's Business Daily]
▶ Raise Stops to Lock in Gains on Parker Hannifin   [Dec-05-17 12:42PM  TheStreet.com]
▶ New Strong Buy Stocks for November 30th   [Nov-30-17 08:01AM  Zacks]
▶ Parker-Hannifin Sees Its Composite Rating Rise To 96   [03:00AM  Investor's Business Daily]
▶ Parker-Hannifin beats Street 1Q forecasts   [Nov-02-17 07:51AM  Associated Press]
▶ Parker Declares Quarterly Cash Dividend   [Oct-25-17 05:05PM  GlobeNewswire]
▶ Parkers New GlobalCore 187 High Performance Hydraulic Hose   [Oct-09-17 06:06PM  Business Wire]
▶ [$$] U.S. Challenges Parker Hannifin's Acquisition of Clarcor   [Sep-26-17 07:53PM  The Wall Street Journal]
▶ Stocks Flashing Renewed Technical Strength: Parker-Hannifin   [Sep-19-17 03:00AM  Investor's Business Daily]
▶ 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]
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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