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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Parker-Hannifin Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 17.05%
01 FCFF0 2,446,894
1 FCFF1 2,598,746 = 2,446,894 × (1 + 6.21%) 2,220,143
2 FCFF2 2,798,602 = 2,598,746 × (1 + 7.69%) 2,042,562
3 FCFF3 3,055,375 = 2,798,602 × (1 + 9.18%) 1,905,091
4 FCFF4 3,381,065 = 3,055,375 × (1 + 10.66%) 1,801,034
5 FCFF5 3,791,667 = 3,381,065 × (1 + 12.14%) 1,725,502
5 Terminal value (TV5) 86,619,927 = 3,791,667 × (1 + 12.14%) ÷ (17.05% – 12.14%) 39,418,778
Intrinsic value of Parker-Hannifin Corp. capital 49,113,109
Less: Notes payable and long-term debt (fair value) 11,131,437
Intrinsic value of Parker-Hannifin Corp. common stock 37,981,672
 
Intrinsic value of Parker-Hannifin Corp. common stock (per share) $296.12
Current share price $349.02

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

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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.

Weighted Average Cost of Capital (WACC)

Parker-Hannifin Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 44,767,410 0.80 20.49%
Notes payable and long-term debt (fair value) 11,131,437 0.20 3.24% = 4.14% × (1 – 21.74%)

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

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 128,266,030 × $349.02
= $44,767,409,790.60

   Notes payable and long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (18.50% + 22.30% + 20.20% + 21.70% + 37.70% + 26.00%) ÷ 6
= 21.74%

WACC = 17.05%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 255,252 250,036 308,161 190,138 213,873 162,436
Net income attributable to common shareholders 1,315,605 1,746,100 1,206,341 1,512,364 1,060,801 983,412
 
Effective income tax rate (EITR)1 18.50% 22.30% 20.20% 21.70% 37.70% 26.00%
 
Interest expense, after tax2 208,030 194,278 245,912 148,878 133,243 120,203
Add: Dividends paid 569,294 474,510 453,213 412,404 365,174 345,042
Interest expense (after tax) and dividends 777,324 668,788 699,125 561,282 498,417 465,245
 
EBIT(1 – EITR)3 1,523,635 1,940,378 1,452,253 1,661,242 1,194,044 1,103,615
 
Notes payable and long-term debt payable within one year 1,724,310 2,824 809,529 587,014 638,466 1,008,465
Long-term debt, excluding payable within one year 9,755,825 6,582,053 7,652,256 6,520,831 4,318,559 4,861,895
Shareholders’ equity 8,848,011 8,398,307 6,113,983 5,961,969 5,859,866 5,261,649
Total capital 20,328,146 14,983,184 14,575,768 13,069,814 10,816,891 11,132,009
Financial Ratios
Retention rate (RR)4 0.49 0.66 0.52 0.66 0.58 0.58
Return on invested capital (ROIC)5 7.50% 12.95% 9.96% 12.71% 11.04% 9.91%
Averages
RR 0.58
ROIC 10.68%
 
FCFF growth rate (g)6 6.21%

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).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 255,252 × (1 – 18.50%)
= 208,030

3 EBIT(1 – EITR) = Net income attributable to common shareholders + Interest expense, after tax
= 1,315,605 + 208,030
= 1,523,635

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,523,635 – 777,324] ÷ 1,523,635
= 0.49

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,523,635 ÷ 20,328,146
= 7.50%

6 g = RR × ROIC
= 0.58 × 10.68%
= 6.21%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (55,898,847 × 17.05% – 2,446,894) ÷ (55,898,847 + 2,446,894)
= 12.14%

where:

Total capital, fair value0 = current fair value of Parker-Hannifin Corp. debt and equity (US$ in thousands)
FCFF0 = the last year Parker-Hannifin Corp. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Parker-Hannifin Corp. capital

FCFF growth rate (g) forecast

Parker-Hannifin Corp., H-model

Microsoft Excel
Year Value gt
1 g1 6.21%
2 g2 7.69%
3 g3 9.18%
4 g4 10.66%
5 and thereafter g5 12.14%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.21% + (12.14% – 6.21%) × (2 – 1) ÷ (5 – 1)
= 7.69%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.21% + (12.14% – 6.21%) × (3 – 1) ÷ (5 – 1)
= 9.18%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.21% + (12.14% – 6.21%) × (4 – 1) ÷ (5 – 1)
= 10.66%