Emerson Electric Co. (EMR Quick QuoteEMR - Free Report) seems to have lost its sheen to the adverse impacts of the coronavirus outbreak, and weakness in the oil and gas market. Also, forex woes and high debts are concerning for the company. Notably, its price performance has been weak and its earnings estimates have also been lowered lately, pointing toward bearish sentiments for the stock.

The company has a market capitalization of $37.4 billion and a Zacks Rank #4 (Sell) at present. It belongs to the Zacks Manufacturing – Electronics industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector.

Notably, Emerson’s earnings surpassed estimates by 17.1% in second-quarter fiscal 2020 (ended Mar 31, 2020). However, sales lagged estimates by 5.2% and declined 9% year over year.

Year to date, the company’s shares have fallen 20.3% compared with the industry’s decline of 7.5%.

Factors Affecting Investment Appeal

Pandemic-Led Headwinds: Emerson’s results in second-quarter fiscal 2020 were adversely impacted by the coronavirus outbreak. Organic sales declined 7% year over year as the pandemic led to a decline in product demand. On a segmental basis, revenues for the two segments — Automation Solutions, and Commercial & Residential Solutions — were down from the year-ago quarter.

The company believes that the pandemic-related uncertainties will continue to hurt in the quarters ahead. Adding to the concerns is a weakness in the oil and gas market of North America. For fiscal 2020 (ending September 2020), the company expects a year-over-year sales decline of 9-11%, with underlying sales declining 7-9%. Also, it predicts an organic sales decline of 13-16% for the fiscal third quarter (ended June 2020, results are awaited).

The company expects a sales decline of 8-10% for Automation Solutions and a fall of 11-13% for Commercial & Residential Solutions.

The Zacks Consensus Estimate for revenues in the third quarter of fiscal 2020 is pegged at $3.84 billion, suggesting a decline of 18% from the year-ago reported figure. Also, estimates for fiscal 2020, pegged at $16.43 billion, and that for fiscal 2021 (ending September 2021), at $16.42 billion, suggests declines of 10.6% and 0.1% from the previous-year reported figures, respectively.

Leverage: High debts increase financial obligations and, in turn, hurt profitability. The company’s long-term debts were $3,960 million at the end of second-quarter fiscal 2020, while its cash and cash equivalents were just $2,583 million. Interest expenses in the quarter totaled $48 million, higher than $36 million incurred in the year-ago quarter.

Despite sequentially higher times interest earned of 18.6x; the company’s total debt to total capital of 50.5% (versus 40.9% in the previous quarter) and total debt to total equity of 101.8% (versus 69.2% in the previous quarter) are more concerning.

Risks From International Operations: The company is exposed to risks — including geopolitical issues, unfavorable movements in foreign currencies and others — arising from international operations. Notably, it has operations in Asia, Africa, the Middle East, Europe and the Americas.

In second-quarter fiscal 2020, the company’s sales were lowered to the extent of 2% on forex woes.

Bottom-Line Projections & Estimate Trend: It expects adjusted earnings of $3.00-$3.20 for fiscal 2020. Notably, the company reported $3.69 per share in the previous year.

Also, the Zacks Consensus Estimate for Emerson’s earnings has moved downward in the past 60 days. The consensus estimate for earnings is currently pegged at $3.07 for fiscal 2020 and $3.20 for fiscal 2021, reflecting declines of 0.3% and 0.9% from the 60-day-ago figures.

Emerson Electric Co. Price and Consensus