The Bullish Contrarian Case For Parker-Hannifin Stock

Parker-Hannifin Corp (PH) could benefit from a capitulation among bearish options traders, analysts, and short sellers

Feb 8, 2017 at 11:09 AM
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Shares of industrial firm Parker-Hannifin Corp (NYSE:PH) look like they're in a strong position, according to Schaeffer's Quantitative Analyst Chris Prybal. The stock's combination of outstanding price performance and surprisingly bearish sentiment have resulted in a "great" contrarian setup, according to Prybal.

PH touched a record high of $152.87 last week. Currently hovering around $146.21, the stock has advanced a market-beating 47% year-over-year, and is already up 4.4% in 2017, charting a series of higher lows since late last year. What's more, the company is fundamentally sound, topping earnings expectations last Thursday and raising its full-year profit guidance.

parker hannifin stock chart

Apparently, none of this has convinced Wall Street to jump on PH's bullish bandwagon. Over half of the 15 analysts rating the stock consider it worthy of only a lukewarm "hold" rating. If that's not enough, short interest has erupted. These bearish bets have shot 73% higher since the U.S. presidential election -- most of which are underwater -- leaving the shares with an elevated short-interest ratio (SIR) of 4.90. In other words, PH is in a prime position to benefit not only from upgrades, but also from a short-squeeze situation.

In the options arena, traders are very put-skewed. PH sports a top-heavy Schaeffer's put/call open interest ratio (SOIR) of 2.36, with puts more than doubling call among strikes expiring in the front three-months' series. Not to mention, this reading ranks in the high 96th percentile of its annual range. An unwinding among bearish options traders could provide even more fuel for the stock.

For those looking to place short-term bets, it happens to be a near-ideal time to strike. The stock sports a Schaeffer's Volatility Index (SVI) of 21%, in the low 18th percentile of its annual range. In other words, traders can scoop up front-month Parker-Hannifin Corp (NYSE:PH) options at a discount, from a volatility perspective.

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