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Here's Why Emerson (EMR) Deserves a Place in Your Portfolio
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Emerson Electric Co. (EMR - Free Report) exhibits healthy prospects on the back of strong demand in the process and hybrid markets. Acquired assets bolster the company’s growth. Shareholder-friendly policies add to the stock’s attractiveness.
Let’s delve deeper to unearth the factors that make investing in this Zacks Rank #1 (Strong Buy) company a smart choice now.
End Market Strength: Strong demand in the process and hybrid markets is boosting underlying orders (up 5% in the fiscal fourth quarter). EMR anticipates sales in the process and hybrid end markets to increase in mid to high single-digits in 2024, driven by energy security, sustainability and decarbonization, nearshoring and digital transformation. A robust demand environment and improving supply chains are supporting underlying sales growth (up 5% in the fiscal fourth quarter).
Within the Intelligent Devices business unit, the company is seeing strength in the measurement and analytical, and final control businesses due to strong demand in the hybrid and process end markets. Revenues from the unit increased 7% year over year in fiscal 2023. Improved supply chains, easier availability of electronic components, and strong backlogs are driving growth of the Software and Control business group. Revenues from the unit jumped 20% year over year in fiscal 2023.
Inorganic Growth Activities: Acquisitions have been Emerson's preferred mode of business expansion so far. In the fourth quarter of fiscal 2023, the company completed the acquisitions of Afag and Flexim. The acquisition of Afag expands Emerson’s capabilities in factory automation, helping the company expand into lucrative end markets — battery manufacturing, automotive, packaging, medical, life sciences and electronics. The acquisition of Flexim adds to EMR’s existing flow measurement positions in coriolis, differential pressure, magmeter and vortex flow measurement and expands its automation portfolio and measurement capabilities.
In October 2023, Emerson completed the acquisition of National Instruments for $8.2 billion. The acquisition is in sync with the company’s focus on global automation to drive growth and profitability. The buyout strengthens EMR’s global automation foothold, helping the company expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense. EMR expects the transaction to generate cost savings of $165 million by the end of the fifth year. The buyout is immediately accretive to EMR’s adjusted earnings. The acquisition will generate significant recurring revenues and improve EMR’s gross margins.
Bullish Guidance: Given the strength across its end markets, Emerson has provided a bullish forecast for fiscal 2024. The company expects net sales to increase 14-17.5% year over year in the first quarter of fiscal 2024. Underlying sales are expected to increase 6.5-8.5%. For fiscal 2024, the company expects net sales to increase 13-15.5% year over year. Underlying sales are anticipated to increase 4-6% in the same period.
Rewards to Shareholders: Strong cash flows (free cash flow was up 35% in fiscal 2023) support Emerson’s shareholder-friendly activities. In the first quarter of fiscal 2023, the company completed its target to buyback $2 billion worth of shares in fiscal 2023. In fiscal 2023, the company paid dividends of $1.2 billion. In October 2022, the company hiked its dividend by 1%. EMR plans to repurchase shares worth $500 million in fiscal 2024. It expects free cash flow of $2.6-$2.7 billion for fiscal 2023.
Northbound Estimate Revision: The Zacks Consensus Estimate for EMR’s fiscal 2024 earnings has been revised upward by 6.4% in the past 60 days.
Other Stocks to Consider
Some other stocks worth considering within the broader Industrial Products sector are as follows:
A. O. Smith has an estimated earnings growth rate of 20.1% and 6.1% for 2023 and 2024, respectively. Shares of the company have gained 31% in the year-to-date period.
ITT (ITT - Free Report) presently carries a Zacks Rank #2. The company pulled off a trailing four-quarter earnings surprise of 8%, on average.
ITT has an estimated earnings growth rate of 16.2% and 10.9% for 2023 and 2024, respectively. Shares of the company have gained 32.5% in the year-to-date period.
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Here's Why Emerson (EMR) Deserves a Place in Your Portfolio
Emerson Electric Co. (EMR - Free Report) exhibits healthy prospects on the back of strong demand in the process and hybrid markets. Acquired assets bolster the company’s growth. Shareholder-friendly policies add to the stock’s attractiveness.
Let’s delve deeper to unearth the factors that make investing in this Zacks Rank #1 (Strong Buy) company a smart choice now.
End Market Strength: Strong demand in the process and hybrid markets is boosting underlying orders (up 5% in the fiscal fourth quarter). EMR anticipates sales in the process and hybrid end markets to increase in mid to high single-digits in 2024, driven by energy security, sustainability and decarbonization, nearshoring and digital transformation. A robust demand environment and improving supply chains are supporting underlying sales growth (up 5% in the fiscal fourth quarter).
Emerson Electric Co. Price and Consensus
Emerson Electric Co. price-consensus-chart | Emerson Electric Co. Quote
Within the Intelligent Devices business unit, the company is seeing strength in the measurement and analytical, and final control businesses due to strong demand in the hybrid and process end markets. Revenues from the unit increased 7% year over year in fiscal 2023. Improved supply chains, easier availability of electronic components, and strong backlogs are driving growth of the Software and Control business group. Revenues from the unit jumped 20% year over year in fiscal 2023.
Inorganic Growth Activities: Acquisitions have been Emerson's preferred mode of business expansion so far. In the fourth quarter of fiscal 2023, the company completed the acquisitions of Afag and Flexim. The acquisition of Afag expands Emerson’s capabilities in factory automation, helping the company expand into lucrative end markets — battery manufacturing, automotive, packaging, medical, life sciences and electronics. The acquisition of Flexim adds to EMR’s existing flow measurement positions in coriolis, differential pressure, magmeter and vortex flow measurement and expands its automation portfolio and measurement capabilities.
In October 2023, Emerson completed the acquisition of National Instruments for $8.2 billion. The acquisition is in sync with the company’s focus on global automation to drive growth and profitability. The buyout strengthens EMR’s global automation foothold, helping the company expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense. EMR expects the transaction to generate cost savings of $165 million by the end of the fifth year. The buyout is immediately accretive to EMR’s adjusted earnings. The acquisition will generate significant recurring revenues and improve EMR’s gross margins.
Bullish Guidance: Given the strength across its end markets, Emerson has provided a bullish forecast for fiscal 2024. The company expects net sales to increase 14-17.5% year over year in the first quarter of fiscal 2024. Underlying sales are expected to increase 6.5-8.5%. For fiscal 2024, the company expects net sales to increase 13-15.5% year over year. Underlying sales are anticipated to increase 4-6% in the same period.
Rewards to Shareholders: Strong cash flows (free cash flow was up 35% in fiscal 2023) support Emerson’s shareholder-friendly activities. In the first quarter of fiscal 2023, the company completed its target to buyback $2 billion worth of shares in fiscal 2023. In fiscal 2023, the company paid dividends of $1.2 billion. In October 2022, the company hiked its dividend by 1%. EMR plans to repurchase shares worth $500 million in fiscal 2024. It expects free cash flow of $2.6-$2.7 billion for fiscal 2023.
Northbound Estimate Revision: The Zacks Consensus Estimate for EMR’s fiscal 2024 earnings has been revised upward by 6.4% in the past 60 days.
Other Stocks to Consider
Some other stocks worth considering within the broader Industrial Products sector are as follows:
A. O. Smith Corporation (AOS - Free Report) presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of 14%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
A. O. Smith has an estimated earnings growth rate of 20.1% and 6.1% for 2023 and 2024, respectively. Shares of the company have gained 31% in the year-to-date period.
ITT (ITT - Free Report) presently carries a Zacks Rank #2. The company pulled off a trailing four-quarter earnings surprise of 8%, on average.
ITT has an estimated earnings growth rate of 16.2% and 10.9% for 2023 and 2024, respectively. Shares of the company have gained 32.5% in the year-to-date period.