Parker-Hannifin Corporation (PH) | The Buildout — AI Infrastructure
The Verdict
Parker-Hannifin makes motion and control technologies — the pumps, valves, seals, filters, actuators and fluid-conveyance hardware that go into aircraft, industrial machines, trucks and buildings. The company reports it holds the number one position in the motion and control industry, and it serves aerospace and defense, in-plant and industrial, transportation, off-highway, energy, and HVAC and refrigeration markets. Its link to the AI buildout is physical but narrow: data centers need liquid cooling, and liquid cooling needs hoses, couplings, manifolds and fittings — which is what Parker's interconnected technologies supply. Management says the data-center business is still too small to be its own reporting vertical.
| Market Cap | — |
| Revenue (TTM) | $21.5B |
| Revenue Growth | +8.3% |
| EBITDA Margin (TTM) | 25.5% |
| Net Debt | $8.2B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- FY26 closed above its own framework on every major line — organic growth 6.6% versus 5.5% guided, adjusted EPS $32.31 versus $31.20, and free cash flow $3.9B versus $3.45B.
- Management raised its adjusted segment operating margin target 300 bps to 30% by FY31 — which it describes as the fifth such raise in just over 10 years — and says the bulk of the walk comes from the existing business.
- Backlog reached a record, up 16%, with Aerospace backlog at $8.5B, up 15%.
- FY27 is guided to the first all-verticals-positive sales outlook in company history, at 7% organic growth at the midpoint.
- The company announced and deployed about $15B of capital in FY26 — Curtis at $1B, Filtration Group and CIRCOR at nearly $12B announced — while still cutting debt by $1B in Q4 and ending at 1.4x net debt to adjusted EBITDA.
What We’re Watching
- Distribution restocking has not arrived. Management says it is 'not calling a full restock yet,' so the broadening recovery still rests on OEM and project demand.
- Aerospace, the largest vertical, is guided from four straight years of double-digit organic growth down to 8.5% organic in FY27, with a higher OE mix assumed.
- Two large deals carry integration and regulatory risk; leverage is expected to approach 3x, with a stated path back to 2x in about six quarters.
- FY27 incrementals are guided near the top of the 30–35% range, below the 40% delivered in Q4 FY26.
On the evidence, the thesis is strengthening: delivery beat the company's own framework, the long-term margin bar was reset higher, and the demand guide is the broadest management says it has given. The portfolio is also being reshaped toward longer-cycle, aftermarket-rich businesses, and the balance sheet absorbed a large capital-deployment year while still deleveraging. The open question is whether the industrial recovery broadens into restocking and whether the FY27 guide — which management calls the highest organic guide it has given in modern history — proves a floor rather than a peak.
Earnings Beat
Parker's fiscal Q4 revenue was $5.8B, up 9.8% year over year with organic growth of 8%. Adjusted segment operating margin was 28.0%, the first quarter above 28%, and adjusted EPS was $9.27, up 21% and the first quarter above $9. For the full year, cash flow from operations passed $4B for the first time, at $4.4B.
| Metric | Q4 FY2026 | Q3 FY2026 | Q4 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $5.8B | $5.5B | $5.2B | +9.8% |
| Gross margin | 39.0% | 36.8% | 37.3% | +170bps |
| EBITDA | $1.5B | $1.4B | $1.3B | +12.8% |
| EPS | $8.54 | $7.06 | $7.16 | +19.3% |
| Backlog | $12.8B | $12.5B | n/a | +16% YoY |
| Data-center share of sales | ~1.5% | ~1% | n/a | — |
So we do have really nice exposure, and it grew nicely last year, and we think it's going to continue to grow. It's about 1.5% of our sales, and we've been previously saying 1%.— Jennifer Parmentier, Chairman and CEO, 2026-08-06
Management tone: Management's language on the industrial recovery moved from 'slow, gradual' on the Q3 FY26 call to 'broadening recovery' on the Q4 FY26 call, while keeping the caveat that they are 'not calling a full restock yet.' The company raised its long-term margin target rather than defending the prior one, and said it expects to close both pending deals with 'no major hurdles.'
Management Guidance
For FY27, management guides reported sales growth of 5.5%–8.5% (7% midpoint, about $23B), organic growth of 5.5%–8.5%, an adjusted segment operating margin of 27.7% at the midpoint, adjusted EPS of $34.75 at the midpoint, and free cash flow of $3.4B–$3.9B with roughly 100% conversion. The guide excludes both pending acquisitions and assumes incrementals near the top of the 30–35% range, a 22.5% tax rate and roughly 0.5% unfavorable currency. Q1 FY27 is guided to reported sales growth of about 9%, organic growth of about 8%, a 27.7% adjusted segment operating margin and adjusted EPS of $8.07.
Trajectory
Revenue accelerated through FY26: from $5,084M in the September 2025 quarter to $5,174M, $5,486M and $5,755M in the June 2026 quarter, which was up 9.8% year over year. Adjusted segment operating margin finished the year at a record 27.3%, and Q4 was the first quarter above 28%. The code-computed signals show gross and EBITDA margins roughly stable over the trend rather than expanding, so the revenue line is the accelerating variable. Cash conversion is healthy: trailing free cash flow of $3,905M against net income of $3,648M, about 106%.
The Model
The model projects FY+1 revenue of $25,400M with EBITDA of $6,655M (a 26.2% margin), and FY+2 revenue of $27,337M with EBITDA of $7,299M (a 26.7% margin). Across the five runs behind the model, FY+1 revenue spans $23,270M to $25,856M and FY+2 spans $24,670M to $27,891M. The near term rests on the record backlog and a broadening industrial recovery, with industrial backlog coverage in the high 20s; FY+2 assumes the acquired businesses contribute and the recovery widens, with company guidance not yet including either pending deal.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $21.5B | $25.4B | $27.3B |
| YoY Growth | — | +18.1% | +7.6% |
| EBITDA | $5.5B | $6.7B | $7.3B |
| EBITDA Margin | 25.5% | 26.2% | 26.7% |
Projections are the median of 5 independent model runs. The model’s revenue sits 12.1% above analyst consensus.
For FY27, management guides reported sales growth of 5.5%–8.5% (7% midpoint, about $23B), organic growth of 5.5%–8.5%, an adjusted segment operating margin of 27.7% at the midpoint, adjusted EPS of $34.75 at the midpoint, and free cash flow of $3.4B–$3.9B with roughly 100% conversion. The guide excludes both pending acquisitions and assumes incrementals near the top of the 30–35% range, a 22.5% tax rate and roughly 0.5% unfavorable currency. Q1 FY27 is guided to reported sales growth of about 9%, organic growth of about 8%, a 27.7% adjusted segment operating margin and adjusted EPS of $8.07.
What Could Go Right — and Wrong
- Distribution restocking broadens, converting the 'broadening recovery' language into volume and lifting industrial incrementals.
- The two pending acquisitions — Filtration Group and CIRCOR — close and report at the stated profile, with CIRCOR's roughly $26M synergy plan delivered.
- Data-center liquid cooling grows past its current share of sales and is reported as its own vertical.
- Aerospace holds high-single-digit growth on commercial build-rate and backlog support, and power generation keeps growing.
- Rolling 12-month order rates prove to track organic growth, restoring confidence in the demand signal after the metric change.
- The industrial recovery stalls before a restock arrives, leaving growth reliant on OEM and project demand.
- Aerospace decelerates below the guided high-single-digit rate as the OE mix rises and comparisons get harder.
- One or both large deals slip past the expected H2 CY2026 / H1 FY27 window, or integrate worse than the stated profile.
- A tariff or input-cost shock lands while the company is deliberately normalizing pricing, pressuring gross margin.
- Leverage approaches 3x with the deals and takes longer than the stated six quarters to return to 2x.
Looking Ahead
Over the next 12 months, Parker is integrating Filtration Group, waiting on CIRCOR's close, and switching to rolling 12-month industrial order reporting. The FY27 guide — the first with positive growth across all market verticals — excludes both pending deals, so any contribution from them would come on top of it. Management says there will be a 'Win 4.0' and a next Investor Day, but no date has been given.
- H2 CY2026 / H1 FY27CIRCOR Aerospace close — Tests whether the stated $270M revenue and >40% adjusted EBITDA margin hold.
- FY27Filtration Group integration — Watch for reported contributions and synergy phasing after the 2026-08-13 close.
- FY27Rolling 12-month orders — Tests whether the new order metric tracks organic growth as management claims.
- FY27Data-center cooling growth — Tests whether the disclosed share moves above about 1.5% of sales.
- No date givenWin 4.0 and Investor Day — Would give the FY31 margin target a program and a dated framework.
Financials
Annual Summary
| Metric | FY2025 | FY2026 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $19.9B | $21.5B | $21.5B | +8.3% |
| Gross Margin | 36.9% | 37.6% | 37.7% | +75bps |
| EBITDA | $5.0B | $5.5B | $5.5B | +9.4% |
| EBITDA Margin | 25.2% | 25.5% | 25.5% | +26bps |
| Net Income | $3.5B | $3.6B | $3.6B | +3.3% |
| Free Cash Flow | $3.3B | $3.9B | $3.9B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)37.7%
- EBITDA Margin (TTM)25.5%
- Net Margin (TTM)17.0%
- ROIC15.5%
- FCF Conversion71.2%
- SBC / Revenue1.5%
The Company
Parker-Hannifin designs, manufactures and services motion and control technologies — highly engineered components and subsystems such as pumps, valves, seals, filters, actuators, connectors and thermal-management hardware. The company reports it holds the number one position in the motion and control industry and serves six market verticals: aerospace and defense, transportation, in-plant and industrial, off-highway, energy, and HVAC and refrigeration. Two-thirds of its revenue comes from customers who buy four or more Parker technologies, which the company calls its interconnected technologies thesis, and it says 85% of its products are covered by intellectual property.
Parker operates a decentralized structure of 85 divisions, each led by a general manager with full profit-and-loss responsibility. It reports two segments — Diversified Industrial and Aerospace Systems — while its earnings calls split the industrial business geographically into North America and International. The industrial business is about half OEM and half aftermarket; the aerospace business is roughly two-thirds commercial and one-third defense. Management says capital spending runs around 2.5% of sales, up from about 2% historically, and cites lean and Kaizen tools as the reason capacity expansion has run below peers.
Business Segments
Competitive Landscape
Parker's competitor list is broad and explicitly non-overlapping. The 10-K names Bosch Rexroth, Danaher, Danfoss, Donaldson, Emerson Climate Technologies, Emerson/ASCO, Festo, Freudenberg-NOK, Gates, IMI/Norgren, SMC, Swagelok and Trelleborg in Diversified Industrial, with the qualifier that none of them competes with every group or product. Aerospace competitors include Crane, Eaton, Honeywell, Moog, RTX, Safran, Senior, Triumph and Woodward. Other companies' filings name Parker as a competitor in specific niches, and the data-center liquid-cooling competitive set is only inferred, not named by Parker.
- Bosch RexrothNamed in the 10-K as a Diversified Industrial competitor; the filing says no competitor overlaps every group or product.
- SwagelokNamed in the 10-K as a Diversified Industrial competitor; also named by Ultra Clean Holdings as a rival in gas delivery components.
- EatonNamed in the 10-K as an Aerospace Systems competitor.
- WoodwardNamed in the 10-K as an Aerospace Systems competitor.
- AmphenolListed only in the inferred wiring layer as a liquid-cooling quick-disconnect competitor; not named by Parker.
Supply Chain
Parker buys raw materials and component parts — steel, copper, fluoropolymers, elastomers, filtration media and electronic components — and sells highly engineered products to OEMs, distributors and, in aerospace, directly to end users.
More on PH: Earnings recap