Back to top

Analyst Blog

Zacks Equity Research

Emerson (EMR) Upgrades Malampaya's Automation Technology


Trades from $3

Emerson (EMR - Analyst Report) recently announced that it has offered its services for Shell Philippines Exploration B.V.’s (“SPEX”) Malampaya natural gas production and processing facilities. The company will be upgrading Malampaya’s automation technology. Its technical knowhow has helped SPEX finish work on the project ahead of schedule.

Malampaya’s Modernization Drive

Gas produced from the Malampaya field is supplied to generating stations, meeting 40% of electricity needs for Philippines’ largest island, Luzon. The Philippines is in the midst of a power infrastructure revamp to increase the sources of reliable and cleaner-burning natural gas. Emerson is aiding SPEX to restore gas supply in Philippines that will aid the country to achieve this target.

The onshore gas processing facilities of SPEX were in poor health and Emerson’s has helped to upgrade them. Also, Emerson supervised the upgradation of SPEX’s control systems, networks as well as valve equipments. Emerson has been Malampaya’s automation technologies provider ever since its inception more than 15 years ago. Emerson has successfully completed the work on Malampaya facility without any hazardous incidents related to safety or environment.

Emerson’s well-reputed technology portfolio has been helping it win some major energy contracts across the globe. This has proved to be conducive to its top line growth. It has bagged some noteworthy contracts during fourth-quarter fiscal 2016. This include an automation maintenance & reliability services contract for Shell’s Prelude Floating Liquefied Natural Gas (“FLNG”) facility and a control & safety system maintenance services contract from French oil firm, Total. 

Depressed Energy Markets Plays Spoilsport

Despite a dominant foothold in the energy market, sustained weak global economic circumstances, depressed industrial spending, along with soft emerging and mature economies, are posing as major headwinds for Emerson. Reduced capital spending and operational expenditure on the part of clients are adding to the company’s woes. Also, the issue of oversupply continues to affect prices and spending levels in the oil and gas sector, thereby marring Emerson’s growth prospects.

Emerson also believes that global economic conditions may take a turn for the worse on account of political uncertainty. This will keep spending levels considerably low for the rest of fiscal 2016. Given such tough economic conditions and dwindling order numbers the company projects underlying sales to be down 5–6% in fiscal 2016. The company believes the situation is unlikely to improve before 2018, thus thwarting the Zacks Rank #5 (Strong Sell) company’s prospects.

Stocks to Consider

Better-ranked stocks in the same space include EnerSys (ENS - Analyst Report) , AO Smith Corp. (AOS - Analyst Report) and Schneider Electric (SBGSY - Snapshot Report) . All three stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Industrial battery maker, EnerSys has a modest earnings beat history, having surpassed estimates thrice over the trailing four quarters. It has an average positive surprise of 2.2%.

Commercial and residential water heating equipment manufacturer, AO Smith Corp. has a robust earnings surprise history. The stock has an average positive earnings surprise of 6.3% over the trailing four quarters, beating estimates all through.

Energy management and automation solutions provider, Schneider Electric SE (SBGSY - Snapshot Report) , has a modest expected EPS growth rate of 3.1%.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>