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Emerson to Buy Permasense, Bets Big on Inorganic Growth


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Engineering and technology behemoth, Emerson Electric Co. (EMR - Analyst Report) entered into an agreement to buy leading non-intrusive corrosion monitoring technologies provider, Permasense Limited. The Permasense buyout will fortify Emerson’s footprint in the integrity and corrosion management solutions business.

Corrosion Monitoring Technology Boost

UK-based firm Permasense offers its monitoring technology for a gamut of industries, ranging from offshore and onshore oil production and refining to chemical and power. Leveraging on state-of-the-art sensor technology, wireless data delivery and advanced analytics, Permasense’s monitoring systems can seamlessly detect corrosion or erosion in pipes, pipelines or vessels. This technology monitors loss of metals from corrosion and can deliver impressive result even in harsh environments.

Post the acquisition, Permasense will be integrated with Emerson’s Rosemount portfolio of analytical technologies. This acquisition will improve Emerson’s Roxar intrusive corrosion monitoring and non-intrusive sand management systems. Moreover, the Permasense buyout will also improve Emerson’s Pervasive Sensing applications, which offer a comprehensive view of clients’ operations and facilities.

Meanwhile, Emerson believes that industrial customers have a pressing need for corrosion detection technologies to safeguard their infrastructure. The use of various types of crude oil in a refinery has increased corrosion levels. The company believes that wireless non-intrusive corrosion monitoring can eliminate this problem by providing customers with a thorough understanding of the health and safety of their infrastructure.

Will Strategic Buyouts Help?

The Permasense deal is Emerson’s third buyout in the past two months, reflecting its effort to boost inorganic growth through investments in core business platforms. This apart, during fourth-quarter fiscal 2016, the company inked an agreement to purchase Pentair Valves & Controls – a business unit of Pentair plc (PNR - Analyst Report) – for $3.15 billion. This transaction is expected to strengthen its foothold in control, isolation, pressure relief valves and actuation business lines.

Further, the company also bought two temperature monitoring solutions – Locus Traxx and PakSense – to solidify its position in the cargo solutions business line. Emerson is specifically aimed at improving its Automation Solutions and Commercial & Residential Solutions by redeploying the cash proceeds from divestitures. The company believes that strategic mergers and acquisitions, along with its restructuring initiatives, will help achieve over $20 billion in sales.

Energy Market Woes Mar Prospects

Despite enjoying a dominant position 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 anticipates global economic conditions to 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 that this situation is unlikely to improve before 2018, thus thwarting the Zacks Rank #5 (Strong Sell) company’s prospects.

Other Stocks to Consider

Better-ranked stocks in the same space include EnerSys (ENS - Analyst Report) and AO Smith Corp. (AOS - Analyst Report) , both of which carry 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.

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