Parker-Hannifin CorporationPHNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $808.12 per share(market-calibrated)

-18.4%

Upside to Fair Value

Current

$990.69

Pure Model

$793.93

Fair Value

$808.12

Bull Case

$979.75

Bear Case

$623.53

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

5.41%

Calibrated Growth

2.72%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $793.93.

What's Driving This Ratingfor PH

✓

CapEx already efficient

CapEx at 1.67% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 31.45% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 7.21% revenue growth, fading to 2.25% by Year 10. Revenue reaches $30.9B (vs $19.9B today).

🎯

Market pricing in higher long-term growth

To justify $990.69, the market implies 5.41% perpetual growth — 316bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 82.01% indicates efficient cash generation. FCF reaches $9.0B by Year 10 (28.95% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.24

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.09%

Cost of Debt

Pre-tax Cost of Debt4.14%

Tax Rate14.00%

After-tax Cost of Debt3.56%

Equity Weight (E/V)92.95%

Debt Weight (D/V)7.05%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (92.95% × 10.09%) + (7.05% × 3.56%)

= 9.63%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$21.3B	$24.2B	$27.7B	$28.9B	$30.9B
EBIT	$6.7B	$7.6B	$8.7B	$9.1B	$9.7B
Tax	$937M	$1.1B	$1.2B	$1.3B	$1.4B
NOPAT	$5.8B	$6.6B	$7.5B	$7.8B	$8.4B
+ Depreciation	$819M	$932M	$1.1B	$1.1B	$1.2B
- Capex	$355M	$404M	$462M	$483M	$516M
- Δ NWC	$181M	$166M	$77M	$81M	$86M
Free Cash Flow	$6.0B	$6.9B	$8.0B	$8.4B	$9.0B
Discount Factor	0.912	0.759	0.632	0.525	0.399
Present Value	$5.5B	$5.2B	$5.1B	$4.4B	$3.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$9.0B

Terminal Growth Rate2.25%

WACC9.63%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$124.1B

PV of Terminal Value$49.5B

Exit Multiple Method

Year 10 EBITDA$10.9B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$196.6B

PV of Terminal Value$78.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$47.1B

PV of Terminal Value$49.5B

Enterprise Value$96.6B

(-) Net Debt$9.2B

Equity Value$87.4B

Shares Outstanding128M

Price per Share$681.29

Exit Multiple Method

PV of Projected FCFs$47.1B

PV of Terminal Value$78.4B

Enterprise Value$125.5B

(-) Net Debt$9.2B

Equity Value$116.3B

Shares Outstanding128M

Price per Share$906.57

Pure Model Fair Value

$793.93

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.63%	$965.17	$989.19	$1,017.67	$1,051.99	$1,094.16
8.63%	$857.41	$873.74	$892.63	$914.73	$940.94
9.63%	$769.24	$780.80	$793.93	$808.97	$826.36
10.63%	$695.22	$703.66	$713.12	$723.77	$735.87
11.63%	$631.89	$638.21	$645.21	$653.00	$661.72

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$623.53

-37.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.55

Base Case

$793.93

-19.9% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.24

Bull Case

$979.75

-1.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.06

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth7.21%

Year 3 Revenue Growth5.73%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin31.45%

Tax Rate14.00%

Historical Capex / Rev1.67%

NWC / Revenue12.65%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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