Is Parker-Hannifin (PH) Set For Another Earnings Beat In Q3?

We expect Parker-Hannifin Corporation (NYSE:PH) to beat earnings expectations when it reports third quarter fiscal 2017 results before the opening bell on Apr 27.

Last quarter, the company posted its sixth consecutive earnings beat, recording a positive surprise of 36.4%. Parker-Hannifin boasts an average positive surprise of approximately 12.4% over the trailing four quarters.

We expect the company to post an earnings beat in the about-to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model conclusively shows that Parker-Hannifin is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +0.54%. This is because the Most Accurate estimate is pegged at $1.87 while the Zacks Consensus Estimate stands at $1.86. 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 #1. This, when combined with the company’s Earnings ESP of +0.54%, makes an earnings prediction likely.

Note 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 a negative estimate revisions momentum.

Growth Factors This Past Quarter

Over the past couple of quarters, Parker-Hannifin witnessed impressive bottom-line and margin growth due to successful cost-containment actions and the “Win Strategy.” We believe that fiscal third-quarter 2017 financials are expected to benefit substantially from the improvised Win Strategy, which focuses on key areas such as customer engagement, customer experience and profitable growth.

Moreover, the company’s diligent business streamlining efforts, undertaken over the last few years, have simplified the bureaucratic organizational structure and created a “leaner” frame. The business restructuring efforts and cost-reduction initiatives are expected to generate significant operating margin improvement and profitability for the soon-to-be-reported quarter.

In addition, Parker-Hannifin’s strategic acquisitions, which have played a key role in supplementing organic sales growth, are expected to drive top-line growth for the soon-to-be-reported quarter. During the second quarter, the company completed the buyout of air filtration systems provider, CLARCOR Inc., for roughly $4.3 billion in cash. We believe that this buyout will unlock multiple sources of recurring revenue streams for the company and significantly boost its filtration product sales.

Similarly, other recent buyouts, namely, Helac and Arnold Jäger Holding GmbH‘s operating units are also expected to boost hydraulics product and global sealing sales. This apart, the company’s extensive distribution network that caters to maintenance, repair and operations (MRO) markets, are expected to fuel the sales of aftermarket parts, thus benefiting the third-quarter fiscal 2017 top-line.

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:

Caterpillar Inc. (NYSE:CAT) has an Earnings ESP of +4.84% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company (NYSE:DE) has an Earnings ESP of +2.50% and a Zacks Rank #2.

Avery Dennison Corp. (NYSE:AVY) has an Earnings ESP of +2.89%, and a Zacks Rank #2.

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