Parker-Hannifin Corp. (PH)

“On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law. Among the tax-friendly provisions is one that will be a boon to equipment suppliers. Companies have been given a tax bonus that allows them to deduct 100% of their depreciation on equipment placed in service between September 2010 and December 31, 2011. … Parker-Hannifin Corp. (PH) is the world’s largest motion control technology company, used in myriad high-tech manufacturing settings. Its fluid handling systems are used by the energy industry.

“You can find its hydraulic systems in a wide range of mobile, industrial and agriculture equipment. Biotech firms use its refrigeration and process control systems. Parker Hannifin is not only a diversified industrial play; it’s well diversified geographically. PH has 13,000 distribution outlets worldwide and operates in 46 countries. And the company always has its eyes open for synergistic acquisitions. Earlier this year, the company acquired a Brazilian manufacturer of hydraulic filters and accessories. Last year, the company picked up a Canadian manufacturer of refrigeration controls and energy management systems. And of course, PH likes surprises. For the quarter ending December 31, 2010, PH posted earnings of $1.39 per share, beating Wall Street estimates by $0.09. In the third quarter of 2010, it beat analysts’ earnings estimates by 41%. In the first two quarters of last year, PH outperformed Wall Street’s expectations by over 20%. … In the second half of 2010, Parker Hannifin grew revenue by 24.0% and earnings per share by 163.6% over the same period in 2009. Clearly the comparisons will be more challenging for PH going forward. But with a strong trend in the PMI [purchasing managers index] and a sweet tax incentive for U.S. equipment buyers, I believe PH may still have a few upside surprises in its future.

“Action to Take: Parker Hannifin strikes me as a solid buy-and-hold candidate. That being said, PH won’t be immune to market turbulence. It’s just that even if the market pulls back, and the price of PH goes along with it, PH is fundamentally positioned to outperform in the foreseeable future. Buy under $91.”

Amy Calistri, StreetAuthority Stock of the Month, 3/3/11

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