Emerson Electric Co. EMR recently clinched a contract from TransAlta Corporation TAC to serve as the main automation contractor for the latter’s project related to the planned conversions of coal-fired power plants to natural gas. Emerson will assist TransAlta in implementing coal-to-gas (CTG) conversion projects at its Keephills and Sundance power plants, which is part of the latter’s $2 billion Clean Energy Investment Plan.
Per the deal, Emerson will be responsible for providing design, procurement, installation and commissioning services in replacing the automation systems for plant conversions projects at both the power plants. The company will work on integrating the new burner management system apart from replacing obsolete controls with its Ovation automation technology. Moreover, as a training tool, Emerson’s high-fidelity digital twin simulator will be leveraged to improve the expertise of operations staff at managing complex operating situations.
The company noted that the work related to the first unit will commence in fall 2020, and the projects are likely to be finished by 2024. As a matter of fact, the conversion of both the plants from coal-fired units to natural gas units will allow TransAlta to minimize emissions, while offering clean and reliable electricity to Alberta.
It’s worth noting here that Emerson’s proficiency in CTG conversion projects has increased substantially, with completion of 25 projects in North America over the past five years.
Existing Business Scenario
Emerson is experiencing persistent weakness in the global discrete manufacturing market due to soft automotive, semiconductor, packaging and textiles end markets. For fiscal 2020 (ending Sep 30, 2020), it predicts sales to be in the range of 3% decline to 1% increase year over year compared with 6% rise predicted earlier.
Also, rising costs and expenses have been an issue for Emerson over the past few quarters. The company recorded year-over-year increase of 6.7% and 0.5% in the cost of sales in the third quarter of fiscal 2019 (ended Jun 30, 2019) and fourth quarter of fiscal 2019 (ended Sep 30, 2019), respectively. In addition, in fiscal 2019 (ended Sep 30, 2019), the company's selling, general and administrative expenses jumped 4.4% year over year.
The Zacks Rank #5 (Strong Sell) stock has gained 5.5% in the past month compared with the industry’s rally of 7.6%.
Stocks to Consider
A couple of better-ranked stocks from the same space are AZZ Inc. AZZ and Energous Corporation WATT. While AZZ sports a Zacks Rank #1 (Strong Buy), Energous carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AZZ delivered average positive earnings surprise of 2.12% in the trailing four quarters.
Energous pulled off average positive earnings surprise of 6.67% in the trailing four quarters.
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TransAlta Corporation (TAC) : Free Stock Analysis Report
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