Yahoo Finance Emerson Stock Exhibits Strong Prospects Despite Headwinds
Emerson Electric Co. EMR is poised to gain from healthy demand across most of its end markets. Solid demand in the process and hybrid industries is boosting underlying sales (up 3% in the fiscal third quarter). The company anticipates sales in the process industry to be robust in fiscal 2024, driven by strength in energy, LNG and power end markets. Also, solid life sciences project momentum in North America, and robust metal and mining activities bode well for the hybrid industry.
The company is also benefiting from the strong performances of the Intelligent Devices and Software and Control segments. Within the Intelligent Devices segment, it is seeing strength in the Final Control business, driven by solid momentum in energy and power end markets. Robust growth in all geographies and strong backlog conversion levels are aiding the Measurement & Analytical business. Within the Software and Control segment, strength in the power, process and hybrid end markets is supporting the Control Systems & Software business. Strength in aerospace and defense end markets, driven by increasing government spending, is supporting the Test & Measurement business’ growth.
Emerson believes in expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions. Notably, acquisitions had a positive impact of 9% on net sales growth in the third quarter of fiscal 2024 (ended June 2024). In the fourth quarter of fiscal 2023 (ended September 2023), the company completed the acquisitions of Afag and Flexim. The buyout of Afag boosted its capabilities in factory automation, helping it expand into lucrative end markets, battery manufacturing, automotive, packaging, medical, life sciences and electronics. The acquisition of Flexim added to its existing flow measurement positions in coriolis, differential pressure, magmeter and vortex flow measurement and expanded its automation portfolio and measurement capabilities.
In October 2023, Emerson completed the buyout of National Instruments for $8.2 billion. The acquisition was in sync with its focus on global automation to drive growth and profitability. The buyout strengthened EMR’s global automation foothold, helping it expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense. It reports the results of National Instruments under the sub-business, Test & Measurement, within the Software and Control group.
Strong cash flows allow Emerson to effectively deploy capital to make acquisitions, repurchase shares and pay dividends. The company’s free cash flow totaled $2 billion, up 30.7% in the third quarter of fiscal 2024. In the first nine months of 2024, it paid out dividends of $901 million and repurchased common stocks worth $175 million. In October 2023, the company hiked its dividend by 1%. It plans to repurchase shares worth $300 million and pay out dividends of $1.2 billion in fiscal 2024. For the fiscal year, it expects a free cash flow of approximately $2.8 billion.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 5.8% compared with the industry’s 17.7% growth.
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Headwinds Plaguing EMR
Emerson has been dealing with the adverse impacts of the high cost of sales and operating expenses. Increasing material and freight costs have been pushing up the cost of sales, which increased 5.8% in the fiscal third quarter. Selling, general and administrative expenses increased 20.4% to $1.3 billion due to increased acquisition-related and stock compensation expenses. The impact of these expenditures is evident in the rise of the selling, general and administrative expenses as a percentage of total revenues, which climbed 220 basis points to reach 28.6%.
Emerson is undertaking restructuring measures to improve operational efficiency, increase the asset base worldwide, reduce the workforce and fight the pandemic-related challenges. However, such measures pose a threat to its bottom line in the near term. Restructuring and related costs totaled $57 million in the fiscal third quarter, up more than 100% year over year. For fiscal 2024, restructuring and associated costs are expected to hurt earnings by 34 cents per share.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Powell Industries, Inc. POWL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
POWL delivered a trailing four-quarter average earnings surprise of 69.9%. In the past 60 days, the Zacks Consensus Estimate for Powell’s fiscal 2024 earnings has increased 32.9%.
Eaton Corporation plc ETN presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 4.7%.
In the past 60 days, the Zacks Consensus Estimate for ETN’s 2024 earnings has increased 2%.
EnerSys ENS currently carries a Zacks Rank of 2. ENS delivered a trailing four-quarter average earnings surprise of 1.5%.
In the past 60 days, the consensus estimate for EnerSys’ fiscal 2025 earnings has increased 2.3%.
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Emerson Electric Co. (EMR) : Free Stock Analysis Report
Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
Powell Industries, Inc. (POWL) : Free Stock Analysis Report
