Stock Analysis on Net
Stock Analysis on Net

Parker-Hannifin Corp. (NYSE:PH)

This company has been moved to the archive! The financial data has not been updated since February 7, 2023.

Present Value of Free Cash Flow to Equity (FCFE) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Parker-Hannifin Corp., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 18.82%
01 FCFE0 7,252,384
1 FCFE1 8,202,439 = 7,252,384 × (1 + 13.10%) 6,903,476
2 FCFE2 9,054,486 = 8,202,439 × (1 + 10.39%) 6,413,771
3 FCFE3 9,749,469 = 9,054,486 × (1 + 7.68%) 5,812,399
4 FCFE4 10,233,373 = 9,749,469 × (1 + 4.96%) 5,134,736
5 FCFE5 10,463,749 = 10,233,373 × (1 + 2.25%) 4,418,873
5 Terminal value (TV5) 64,590,479 = 10,463,749 × (1 + 2.25%) ÷ (18.82% – 2.25%) 27,276,752
Intrinsic value of Parker-Hannifin Corp. common stock 55,960,007
 
Intrinsic value of Parker-Hannifin Corp. common stock (per share) $436.28
Current share price $349.02

Based on: 10-K (reporting date: 2022-06-30).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Parker-Hannifin Corp. common stock βPH 1.55
 
Required rate of return on Parker-Hannifin Corp. common stock3 rPH 18.82%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rPH = RF + βPH [E(RM) – RF]
= 4.67% + 1.55 [13.79% – 4.67%]
= 18.82%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Parker-Hannifin Corp., PRAT model

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Average Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017
Selected Financial Data (US$ in thousands)
Dividends paid 569,294 474,510 453,213 412,404 365,174 345,042
Net income attributable to common shareholders 1,315,605 1,746,100 1,206,341 1,512,364 1,060,801 983,412
Net sales 15,861,608 14,347,640 13,695,520 14,320,324 14,302,392 12,029,312
Total assets 25,943,943 20,341,200 19,738,189 17,576,690 15,320,087 15,489,904
Shareholders’ equity 8,848,011 8,398,307 6,113,983 5,961,969 5,859,866 5,261,649
Financial Ratios
Retention rate1 0.57 0.73 0.62 0.73 0.66 0.65
Profit margin2 8.29% 12.17% 8.81% 10.56% 7.42% 8.18%
Asset turnover3 0.61 0.71 0.69 0.81 0.93 0.78
Financial leverage4 2.93 2.42 3.23 2.95 2.61 2.94
Averages
Retention rate 0.66
Profit margin 9.24%
Asset turnover 0.76
Financial leverage 2.85
 
FCFE growth rate (g)5 13.10%

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

2022 Calculations

1 Retention rate = (Net income attributable to common shareholders – Dividends paid) ÷ Net income attributable to common shareholders
= (1,315,605 – 569,294) ÷ 1,315,605
= 0.57

2 Profit margin = 100 × Net income attributable to common shareholders ÷ Net sales
= 100 × 1,315,605 ÷ 15,861,608
= 8.29%

3 Asset turnover = Net sales ÷ Total assets
= 15,861,608 ÷ 25,943,943
= 0.61

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 25,943,943 ÷ 8,848,011
= 2.93

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.66 × 9.24% × 0.76 × 2.85
= 13.10%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (44,767,410 × 18.82% – 7,252,384) ÷ (44,767,410 + 7,252,384)
= 2.25%

where:
Equity market value0 = current market value of Parker-Hannifin Corp. common stock (US$ in thousands)
FCFE0 = the last year Parker-Hannifin Corp. free cash flow to equity (US$ in thousands)
r = required rate of return on Parker-Hannifin Corp. common stock

FCFE growth rate (g) forecast

Parker-Hannifin Corp., H-model

Microsoft Excel
Year Value gt
1 g1 13.10%
2 g2 10.39%
3 g3 7.68%
4 g4 4.96%
5 and thereafter g5 2.25%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 13.10% + (2.25% – 13.10%) × (2 – 1) ÷ (5 – 1)
= 10.39%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 13.10% + (2.25% – 13.10%) × (3 – 1) ÷ (5 – 1)
= 7.68%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 13.10% + (2.25% – 13.10%) × (4 – 1) ÷ (5 – 1)
= 4.96%