Parker-Hannifin's Concerning Outlook Prompts Argus To Move To The Sidelines

Parker-Hannifin Corp PH, a manufacturer of motion and control technologies and systems to control fluids, gas or air, disappointed Argus in its fiscal 2019 outlook which prompted the research firm to downgrade the stock.

The Analyst

Argus' John Eade downgraded Parker-Hannifin from Buy to Hold with no assigned price target.

The Thesis

Parker-Hannifin reported its fourth-quarter results in early August, which "easily topped" consensus estimates and highlighted by a 31-percent earnings growth to $3.22 per share and revenue rose 9 percent, Eade said in a note. However, guidance disappointed as the company expects to see an organic sales growth rate of 2.3-4.1 percent and earnings growth of 3-10 percent.

Management's guidance implies a slowdown in top-line growth while margins are likely to be pressured by inflation and tariffs. As such, the analyst said near-term trends are now seen as "problematic" and the company's potential problems are industry-wide. In fact, the sector as a whole could see industry valuations remain compressed and investors should seek out other industrial stocks with stronger growth profiles.

Parker-Hannifin's stock has underperformed the broader market over the past year and since peaking at $212 in January, shares have shown a bearish pattern with lower highs and lower lows, the analyst wrote.

Price Action

Shares of Parker-Hannifin were trading around $166.83 at time of publication.

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