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Emerson Electric (EMR) Poised to Grow Despite Headwinds

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Emerson Electric Co. (EMR - Free Report) has managed to impress investors with third-quarter 2017 results. Although the company’s earnings came in line with the Zacks Consensus Estimate, net sales surpassed the same and grew 9.9% year over year. The company is anticipated to continue the momentum on the back of recent optimistic order trends and recovering end markets. Emerson Electric raised earnings guidance for fiscal 2017 in the last quarterly report, reflecting these  catalysts.

We believe an outstanding performance in the Automation Solutions and Commercial & Residential Solutions bode well for growth for rest of the fiscal year. Further, the company, which has a strong foothold in a diversified global manufacturing and technology industry, has several growth drivers working in its favor. Read on to find out the key drivers for this company right now.

Existing Business Scenarios

Emerson Electric experienced impressive revenue growth in the third quarter, driven by sound performance from the Automation Solutions backed by robust, broad-based demand in power, life sciences and chemical markets. Moreover, the Commercial & Residential Solutions platform experienced 7% increase in net and underlying sales, supported by robust demand in global HVAC and refrigeration markets.

In light of the strong momentum, Emerson Electric anticipates net sales for the year to grow about 5% compared with prior projections of flat net sales.

Recently, the company has reshuffled and streamlined businesses, which will optimize operational structure and bolster profits. Favorable trends in power and life sciences are expected to boost growth for the company. Emerson Electric’s small bolt-on and strategic acquisitions has also aided it to secure a place in the core market and grab greater market share. In the last few months, the company completed acquisitions of Pentair Valves & Controls, Locus Traxx, Blending & Transfer Systems business of FMC Technologies and PakSense. We believe these buyouts will supplement the company’s top-line performance, going forward.

However, the company’s operations have been suffering as a result of slow spending in general industrial markets. This has affected the company’s order rates across the related segments and pulled down the sales figure. The company’s Industrial Automation markets in North America have been extremely challenging and any improvements that Emerson anticipated did not materialize, consequently creating pressure.

The industrial products sector is highly competitive; dominated by several multinational; behemoths like Emerson, Applied Industrial Technologies, Inc. (AIT - Free Report) , Barnes Group, Inc. (B - Free Report) and Avery Dennison Corporation (AVY - Free Report) . In order to boost competency Emerson makes expensive research and development investments. However, this increases its aggregate debt burden moving ahead.

Further, the company believes that sluggish economic conditions and prolonged softness in the oil and gas markets may take a turn for the worse due to global economic uncertainty. Such tough economic conditions and dwindling order rates do not bode well for the company, thereby adding to the company’s challenges.

Considering the growth drivers and the risks that the company faces, we believe its focus on business streamlining along with positive trends in certain business areas offer Emerson Electric modest growth opportunities.

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