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Can Parker-Hannifin (PH) Maintain its Earnings Streak in Q1?

Parker-Hannifin Corporation PH is scheduled to report first-quarter fiscal 2018 results before the opening bell on Nov 2.

Last quarter, the company posted its eighth consecutive earnings beat, recording a positive surprise of 6.1%. Parker-Hannifin boasts an average positive surprise of 14.5% over the trailing four quarters.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Parker-Hannifin continues to benefit from its extensive distribution network, which sells to the more lucrative MRO markets. Robust distribution sales help it reach out to smaller OEMs. We believe the company’s strong aftermarket sales are likely to raise its bottom line and margins for the fiscal first quarter. This apart, Parker-Hannifin’s revamped “WIN Strategy”, which cushions against global macroeconomic uncertainties, has acted as a staple growth driver.

We expect the company’s Diversified Industrial -- North America segment to continue its solid growth trajectory in the coming quarterly results as well. In fact, the Zacks Consensus Estimate for the segment’s sales currently is pegged at $1,504 million, which reflects growth of 28.9% year over year. The Industrial International segment is also projected to grow 16.7% year over year to $1,185 million.

The Aerospace segment of the company has been tepid in recent times. In the coming results, we estimate its revenues to inch up 2% year over year to $572 million.

Separately, the WIN Strategy, along with a host of other consolidation and simplification initiatives, has helped Parker-Hannifin garner significant cost savings and witness margin expansion. During the reported fiscal fourth quarter, the company’s adjusted segment operating margins expanded 120 basis points year over year, thanks to its concerted restructuring activities, undertaken over the last few years. This trend is likely to continue for the soon-to-be-reported quarter as well.

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

In addition, the recent CLARCOR buyout, which strengthened Parker-Hannifin’s filtration product suite, will supplement the company’s recurring revenue growth. Also, other bolt-on acquisitions completed over the past two years, namely Jäger Automobil-Technik GmbH, Jäger Automotive Polska President Engineering Group Limited and Helac Corporation, are also likely to stoke its inorganic growth for the fiscal first quarter.

Despite these positives, Parker-Hannifin’s diverse geographic presence is exposed to currency headwinds. This apart, sluggishness in its key natural resources market that includes oil and gas, agriculture, mining and construction equipment, might hamper the company’s growth.

In addition to this, escalating prices of core materials like steel and aluminium are expected to erode the company’s financials for the soon-to-be-reported quarter. Moreover, Parker-Hannifin’s high restructuring charges might pose as headwind for the upcoming results.

Earnings Whispers

Our proven model does not conclusively show that Parker-Hannifin will likely beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $2.02.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Parker-Hannifin has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Terex Corporation TEX, with an Earnings ESP of +3.17% and a Zacks Rank of 2, is expected to release quarterly numbers around Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mylan N.V. MYL, with an Earnings ESP of +3.92% and a Zacks Rank of 2, is slated to report results on Nov 6.

Scripps Networks Interactive, Inc SNI has an Earnings ESP of +5.10% and a Zacks Rank #3. The company is likely to release earnings on Nov 6.

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