In the rapidly evolving landscape of technology, the advent of artificial intelligence (AI) stands out as a transformative force reshaping industries across the board. As AI applications proliferate, the demand for robust data centers and industrial components has soared, with the critical task of managing the immense computational power required by AI systems while preventing overheating of AI chips.
Industry observers are closely monitoring firms responsible for developing infrastructure solutions crucial for temperature regulation, including Parker-Hannifin’s (PH) fluid connectors and TE Connectivity’s (TEL) industrial connectors, which are pivotal for transmitting electric signals within data center servers.
Let’s take a closer look at these two dividend stocks.
1. Parker-Hannifin Corporation
With a market cap of $72.13 billion, Parker-Hannifin Corporation (PH) specializes in designing and manufacturing diversified industrial and aerospace systems, providing motion-control and fluid systems and components for industrial markets, and offering flight control, hydraulic, fluid conveyance, thermal-management, pneumatic, and lubrication systems and components for aerospace markets.
Shares of Parker-Hannifin have surged 33.8% over the past six months and about 72% over the past 52 weeks.
On April 25, Parker-Hannifin declared a dividend of $1.63 per share, marking a 10.1% increase from the previous quarterly dividend of $1.48 per share, payable to its shareholders on June 7. The company holds a 7-year track record of consecutive dividend increases and a 5-year dividend CAGR of 13.95%. Its annualized dividend of $6.52 per share translates to a dividend yield of 1.16%, with the dividend protected by a moderate 23.97% payout ratio.
The company reported its Q3 earnings results on May 2. Although overall revenue remained relatively unchanged year-over-year at $5.07 billion, aligning with Wall Street’s estimates, the company’s non-GAAP EPS increased by 10% year-over-year to a record $6.51 per share, surpassing analysts’ expectations by $0.40. Moreover, the company saw an uptick in its gross profit margin to 35.4% in the third quarter, up from 34.0% in the same period last year, driven by factors such as price hikes, a favorable product mix, reduced material costs, cost containment efforts, and operational efficiencies.
Notably, the company’s fiscal 2024 year-to-date cash flow from operations surged by 20% to a record of $2.1 billion, equivalent to 14.6% of sales, marking a solid increase from $1.8 billion, or 12.8% of sales, reported in the previous year.
Looking ahead, Parker-Hannifin updated its outlook for the fiscal year ending June 30. Management anticipates that adjusted EPS will fall within the range of $24.65 to $24.85, an increase from the previous guidance of $23.90 to $24.50. Total sales growth is projected to be approximately 4%, compared to the previous forecast range of 3% to 5%. The total segment operating margin is forecast to be about 21.2%, or 24.6% on an adjusted basis.
Analysts responded positively to the company’s quarterly results and guidance, prompting some price-target hikes on Parker-Hannifin stock. Argus raised its price target on PH stock to $590 from $550 and kept a “Buy” rating. Also, Truist boosted its price target on the stock to $611 from $602 and maintained a “Buy” rating, while Mizuho raised its PH price target to $550 from $490 while keeping a “Neutral” rating.
Analysts tracking the company anticipate a 15.03% year-over-year increase profits to $24.79 per share for fiscal 2024, with revenue expected to rise 4.10% year-over-year to $19.85 billion.
In terms of valuation, the stock is currently trading at 22.65x forward earnings, which is somewhat higher than the sector median of 18.93x. However, given the company’s projected growth, margin expansion, and involvement in AI, the multiplier appears well-justified.
Parker-Hannifin stock has a consensus “Strong Buy” rating. Out of 16 analysts covering PH, 13 have a “Strong Buy,” and the remaining three give a “Hold” rating.
The average analyst price target of $587.46 indicates a potential upside of around 5% from current price levels. However, the Street-high price target of $640 suggests that the stock could rise as much as 14.1%.
2. TE Connectivity
Valued at $44.77 billion, Switzerland-based TE Connectivity (TEL) specializes in manufacturing and supplying global connectivity and sensor solutions, encompassing a wide array of products including electrical connectors, wire connectors, RJ45 connectors, M12 connectors, LED connectors, heat shrink tubing, automotive relays, and a diverse range of sensor types.
Shares of TE Connectivity have gained about 15% over the past six months…
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