Back to top

Analyst Blog

On Jan 3, we reiterated our Neutral recommendation on Emerson Electric Company (EMR - Analyst Report) largely due to its modest fourth quarter performance. We prefer to remain on the sidelines until we see substantial organic growth and improvement in the overall industry environment.

Why a Neutral Recommendation?

On Nov 25, Emerson reported fourth-quarter 2013 earnings per share of $1.18 a share, which was 6.3% above the Zacks Consensus Estimate of $1.11. The company’s earnings surged 203% year over year. Despite a sluggish economy, underlying growth across the company’s markets and segments remained strong during the quarter. 

The company’s modest operational execution and healthy returns from restructuring initiatives led to its growth. During the reported quarter, Emerson’s revenues increased in regions like Latin America, Middle-East, Asia, Canada, Europe and Africa; whereas underlying sales declined in major economies like the U.S.

The company is well-positioned to benefit from the long-term global trends of infrastructure spending and improved energy efficiency. Emerson is also expected to benefit from the steady adoption of central air conditioning in Asia driven by the emerging middle class and broader energy efficiency initiatives. Also, increasing investments in North America are likely to have a positive impact on the company’s business.

Going forward, Emerson’s cost-cutting and restructuring initiatives are expected to significantly benefit the company. For the last two years, Emerson is focusing on reducing costs while boosting profits.The company is also focusing on redeployment of capital in core areas by divesting underperforming assets like its business in embedded power and computing systems.

However, Emerson’s business is more prone to global economic and political risks as its operations are spread across the world, majority of which are outside the U.S. The European economy continues to appear weak, as the recovery process has been slow after the sovereign debt crisis. Moreover, as oil-prices are on a decline, the company’s business in Middle-East is likely to be impacted negatively.

In the reported quarter, the company was impacted by 2% drop in sales owing to sluggish economic conditions in mature markets, including U.S.. Moreover, revenues declined in two of its five operating segments. In the quarter, the company also had to take additional impairment charges for the ongoing divestment of its embedded, computing and power business.

Thus, we prefer to remain on the sidelines and maintain our Neutral recommendation on Emerson.

Other Stocks to Consider

Emerson currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil & gas and utilities sector include EnerSys (ENS - Snapshot Report), Pioneer Power Solutions, Inc. (PPSI) and Alamo Group, Inc. (ALG - Snapshot Report). EnerSys and Pioneer Power Solutions both carry a Zacks Rank #1 (Strong Buy), while Alamo Group carries a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%