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    PH · NYQ · Industrials

    Parker-Hannifin Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 309.57

    Market price

    USD 943.54

    Implied upside

    -67.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Current EV/EBITDA of 22.8x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 309.57-67.2%
    Exit multiple
    USD 696.86-26.1%
    Market price
    USD 943.54

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 22.4bnUSD 23.3bnUSD 24.2bnUSD 25.2bnUSD 26.3bn+4.1%
    EBITUSD 4.3bnUSD 4.5bnUSD 4.7bnUSD 4.9bnUSD 5.1bn+4.1%
    NOPATUSD 3.4bnUSD 3.6bnUSD 3.7bnUSD 3.9bnUSD 4.0bn+4.1%
    Add depreciation & amortisationUSD 999.7mUSD 1.0bnUSD 1.1bnUSD 1.1bnUSD 1.2bn+4.1%
    Less capital expenditureUSD -466.1mUSD -485.2mUSD -505.0mUSD -525.6mUSD -547.1m+4.1%
    Less increase in working capitalUSD -157.7mUSD -164.1mUSD -170.8mUSD -177.8mUSD -185.1m+4.1%
    Free cashflow to firmUSD 3.8bnUSD 4.0bnUSD 4.1bnUSD 4.3bnUSD 4.5bn+4.1%
    Discount factor0.95140.86110.77940.70540.6385-
    Present valueUSD 3.6bnUSD 3.4bnUSD 3.2bnUSD 3.0bnUSD 2.9bn-5.8%
    Present Value Of The ForecastUSD 16.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.082Reported 1.123, pulled toward 1.0 (Blume)
    Cost of equity10.95%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 118.9bn93.3% of capital
    Total debtUSD 8.5bn6.7% of capital, book value as a proxy
    Tax rate20.4%Effective, capped at statutory
    WACC10.48%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 309.57

    66% of EV

    Forecast FCFF, final year
    USD 4.5bn
    Capex at depreciation, working capital in reinvestment
    USD 4.6bn
    Less reinvestment at g/ROIC (18.2% of NOPAT)
    USD -840.1m
    Capitalised
    USD 3.8bn
    ROIC (reported)
    13.7%
    Terminal value, undiscounted
    USD 48.4bn
    Terminal value, discounted
    USD 30.9bn
    Enterprise value
    USD 47.1bn
    Less net debt
    USD 8.0bn
    Equity value
    USD 39.0bn

    Exit at 20.0x EBITDA

    Value per shareUSD 696.86

    83% of EV

    Terminal value, undiscounted
    USD 124.9bn
    Terminal value, discounted
    USD 79.7bn
    Enterprise value
    USD 95.9bn
    Less net debt
    USD 8.0bn
    Equity value
    USD 87.9bn

    Spread between methods: 77%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.48%398.26410.77425.20442.10462.21
    9.49%342.65350.42359.16369.12380.59
    10.48%299.39304.23309.57315.50322.17
    11.48%264.76267.73270.93274.42278.24
    12.48%236.41238.14239.97241.90243.97

    Outlined: this model. Green text: above today's price of 943.54. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.1%31.8%+27.7pp
    EBIT margin19.3%56.4%+37.1pp
    Discount rate10.5%5.3%-5.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.