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Here's Why Emerson (EMR) Should Grace Your Portfolio Now
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Emerson Electric Co. (EMR - Free Report) is gaining from strength across its end markets and improving supply chains. Acquired assets are driving the company’s growth. Shareholder-friendly policies add to the stock’s appeal.
Let’s delve deeper to unearth the factors that make this Zacks Rank #2 (Buy) company a good investment option.
Business Strength: Strong demand in the process and hybrid markets is boosting underlying orders (up 7% in the fiscal second quarter). Robust demand environment and improving supply chains are supporting underlying sales growth (up 14% in the fiscal second quarter). Within the Intelligent Devices business unit, the company is seeing underlying sales growth in the Americas region. Revenues from the unit increased 6% year over year in the first six months of fiscal 2023. The AspenTech acquisition and strength in the process end markets are driving growth of the Software and Control business group. Revenues from the unit jumped 30% year over year in the first six months of fiscal 2023.
Bullish Guidance: Given the strength across its end markets, Emerson has raised its fiscal 2023 guidance. For fiscal 2023, the company expects net sales to increase 9-10.5% compared with a rise of 8-10% anticipated earlier. Underlying sales are expected to increase 8.5-10% compared with 6.5-8.5% rise estimated earlier. Adjusted earnings are predicted to be between $4.15 and $4.25 compared with $4.00–$4.15 forecasted earlier.
For the fiscal third quarter, EMR expects underlying sales to increase 10-12%. Net sales are predicted to increase 10.5-12.5% year over year in the fiscal third quarter. Adjusted earnings are estimated to be in the band of $1.07-$1.11 per share for the fiscal third quarter. The mid-point of the guided range — $1.09 — indicates an increase of 18% from the year-ago reported number.
Expansion Initiatives: Acquisitions have been Emerson's preferred mode of business expansion so far. The acquisition of Fluxa (July 2022) has enabled Emerson to leverage the former’s PKM software, its DeltaV control system and life sciences automation software to provide customers with a comprehensive line of solutions for developing new drugs. The May 2022 acquisition of AspenTech has helped EMR facilitate its software strategy and realize substantial synergies.
Emerson aims to transform into a global automation company. To this end, the company has lately been divesting non-core/non-profitable businesses. In June 2023, the company completed the divestiture of its Climate Technologies business to Blackstone. In November 2022, the company completed the divestment of its InSinkErator business to Whirlpool.
Emerson’s move to acquire National Instruments in an $8.2 billion deal is aligned with its focus on global automation to drive growth and profitability. The acquisition, expected to be completed in the first half of fiscal 2024, will strengthen EMR’s global automation foothold, helping it to expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense.
Apart from expanding automation capabilities, the acquisition will open up industrial software opportunities for EMR. Emerson expects the transaction to generate cost savings of $165 million by the end of the fifth year upon completion. The buyout is expected to be immediately accretive to EMR’s adjusted earnings. The acquisition will also generate significant recurring revenues and improve EMR’s gross margins.
Shareholder-Friendly Activities: In fiscal 2022, the company paid out dividends of $1,223 million and bought back shares worth $500 million. In the first quarter of fiscal 2023, the company completed its target to buyback $2 billion worth of shares in fiscal 2023. In the first six months of fiscal 2023, it paid dividends of $603 million. For 2023, the company expects to pay out dividends of approximately $1.2 billion. The handsome rewards to shareholders can be linked to EMR’s strong cash flow generation capacity. The company expects a free cash flow of $2.2 billion for fiscal 2023.
Northbound Estimate Revision: The Zacks Consensus Estimate for Emerson’s fiscal 2023 earnings has been revised upward by 1.2% in the past 60 days.
Other Stocks to Consider
Some other top-ranked stocks within the broader Industrial Products sector are as follows:
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Here's Why Emerson (EMR) Should Grace Your Portfolio Now
Emerson Electric Co. (EMR - Free Report) is gaining from strength across its end markets and improving supply chains. Acquired assets are driving the company’s growth. Shareholder-friendly policies add to the stock’s appeal.
Let’s delve deeper to unearth the factors that make this Zacks Rank #2 (Buy) company a good investment option.
Business Strength: Strong demand in the process and hybrid markets is boosting underlying orders (up 7% in the fiscal second quarter). Robust demand environment and improving supply chains are supporting underlying sales growth (up 14% in the fiscal second quarter). Within the Intelligent Devices business unit, the company is seeing underlying sales growth in the Americas region. Revenues from the unit increased 6% year over year in the first six months of fiscal 2023. The AspenTech acquisition and strength in the process end markets are driving growth of the Software and Control business group. Revenues from the unit jumped 30% year over year in the first six months of fiscal 2023.
Bullish Guidance: Given the strength across its end markets, Emerson has raised its fiscal 2023 guidance. For fiscal 2023, the company expects net sales to increase 9-10.5% compared with a rise of 8-10% anticipated earlier. Underlying sales are expected to increase 8.5-10% compared with 6.5-8.5% rise estimated earlier. Adjusted earnings are predicted to be between $4.15 and $4.25 compared with $4.00–$4.15 forecasted earlier.
Emerson Electric Co. Price and Consensus
Emerson Electric Co. price-consensus-chart | Emerson Electric Co. Quote
For the fiscal third quarter, EMR expects underlying sales to increase 10-12%. Net sales are predicted to increase 10.5-12.5% year over year in the fiscal third quarter. Adjusted earnings are estimated to be in the band of $1.07-$1.11 per share for the fiscal third quarter. The mid-point of the guided range — $1.09 — indicates an increase of 18% from the year-ago reported number.
Expansion Initiatives: Acquisitions have been Emerson's preferred mode of business expansion so far. The acquisition of Fluxa (July 2022) has enabled Emerson to leverage the former’s PKM software, its DeltaV control system and life sciences automation software to provide customers with a comprehensive line of solutions for developing new drugs. The May 2022 acquisition of AspenTech has helped EMR facilitate its software strategy and realize substantial synergies.
Emerson aims to transform into a global automation company. To this end, the company has lately been divesting non-core/non-profitable businesses. In June 2023, the company completed the divestiture of its Climate Technologies business to Blackstone. In November 2022, the company completed the divestment of its InSinkErator business to Whirlpool.
Emerson’s move to acquire National Instruments in an $8.2 billion deal is aligned with its focus on global automation to drive growth and profitability. The acquisition, expected to be completed in the first half of fiscal 2024, will strengthen EMR’s global automation foothold, helping it to expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense.
Apart from expanding automation capabilities, the acquisition will open up industrial software opportunities for EMR. Emerson expects the transaction to generate cost savings of $165 million by the end of the fifth year upon completion. The buyout is expected to be immediately accretive to EMR’s adjusted earnings. The acquisition will also generate significant recurring revenues and improve EMR’s gross margins.
Shareholder-Friendly Activities: In fiscal 2022, the company paid out dividends of $1,223 million and bought back shares worth $500 million. In the first quarter of fiscal 2023, the company completed its target to buyback $2 billion worth of shares in fiscal 2023. In the first six months of fiscal 2023, it paid dividends of $603 million. For 2023, the company expects to pay out dividends of approximately $1.2 billion. The handsome rewards to shareholders can be linked to EMR’s strong cash flow generation capacity. The company expects a free cash flow of $2.2 billion for fiscal 2023.
Northbound Estimate Revision: The Zacks Consensus Estimate for Emerson’s fiscal 2023 earnings has been revised upward by 1.2% in the past 60 days.
Other Stocks to Consider
Some other top-ranked stocks within the broader Industrial Products sector are as follows:
Ingersoll Rand (IR - Free Report) presently sports a Zacks Rank #1 (Strong Buy). The company delivered a trailing four-quarter earnings surprise of 12.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand has an estimated earnings growth rate of 14.4% for the current year. Shares of the company have jumped 57.4% in a year.
Graco (GGG - Free Report) currently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.4% for the current year. Shares of the company have rallied 42.2% in a year.