The company had 884 million in cash and marketable

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The company had $884 million in cash and marketable securities at the end of the fiscal year. Total debt was $6 billion or 53% of total capital. Pretax income covered net interest expense by a factor of 8 last year. Management has said that it is committed to maintaining a high investment-grade rating and plans to pay down the debt it has taken on to buy CLARCOR. The company’s priorities for the use of cash are dividends, acquisitions, and share buybacks – in that order. Parker pays a dividend and targets a payout ratio of 30%. The current dividend rate is $2.64 annually, for a yield of about 1.3%. The company has increased its annual dividends per share paid to shareholders for 61 consecutive years. Our dividend forecasts are $2.64 for FY18 and $2.76 for FY19. MANAGEMENT & RISKS Tom Williams became the company’s CEO in 2015. He was previously chief operating officer. He spent 22 years at General Electric before joining Parker-Hannifin as vice president of the hydraulics business in 2003. Catherine A. Suever is the CFO. Management continues to focus on its “New Win” Strategy. The plan focuses on engaging team members, providing a premier customer experience, and generating profitable growth. With this strategy, management is targeting sales growth of 150 basis points above the industry rate, 17% operating margins, and a compound annual growth rate of 8% by the end of fiscal 2020. Parker Hannifin is a virtual pure-play on the industrial economy. PH’s exposure to specific market niches (aerospace, refrigeration, air conditioning, telecom, semiconductors, construction machinery, trucks and automotive, among others) is mitigated by its wide range of motion-control customers, which span virtually every industry and are serviced by its worldwide distribution network. PH generates substantial revenue overseas and its results are typically linked to global economic trends. Worldwide, we estimate that global GDP rose 3.1% in 2016. We and the IMF look for stronger growth of 3.7% in 2017 and 3.9% in 2018. Parker-Hannifin is also sensitive to trends in the dollar. Looking ahead, we think the greenback is fairly valued and in a trading range, particularly if the Federal Reserve continues to move slowly to raise short-term rates. A stable or falling dollar would be a positive development for the Industrial sector and Parker-Hannifin. COMPANY DESCRIPTION Parker-Hannifin manufactures motion and control technologies and systems that are used to control fluids, gas, or air in hydraulic, pneumatic and vacuum applications. It sells its more than 800,000 products to aerospace, commercial and industrial customers, which use them to move materials and operate machines and vehicles. PH shares are a component of the S&P 500. VALUATION PH shares appear attractively valued at current prices near $183, above the midpoint of their 52-week range of $145-$212.
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