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Emerson (EMR) Benefits From Strong End Markets Amid Risks
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Emerson Electric Co. (EMR - Free Report) is poised to benefit from strength across its life sciences, chemical and power end markets in the quarters ahead. Improvement in electronics and semiconductor end markets is likely to drive its performance. Also, the company’s robust backlog level at both its Automation Solutions and Commercial & Residential Solutions segments is likely to support its top-line performance in the coming quarters. For fiscal 2022 (ending September 2022), the company predicts net sales growth of 8-10% year over year.
The company’s acquisition of Mita-Teknik (December 2021) has been expanding its presence in the renewable energy market. It acquired Progea Group and Open Systems International in the first quarter of fiscal 2021 (ended December 2020). While the Open Systems acquisition has been enhancing the company’s offerings under the Automation Solutions segment, the Progea buyout has been improving its offerings within the control and embedded software space. In May 2022, Emerson merged its industrial software businesses with Aspen Technology, Inc. (AZPN - Free Report) to create “new AspenTech”. The merger will enable it to gain control of a high-valued pure-play industrial software leader, expedite its software strategy and realize substantial synergies.
Its ability to generate solid cash flows allows it to reward shareholders apart from making acquisitions. For fiscal 2022, it anticipates a free cash flow of $3 billion. Also, in the first six months of fiscal 2022, the company paid dividends worth $613 million and repurchased shares worth $285 million. In November 2021, the quarterly dividend rate was hiked by 2%. For fiscal 2022, it intends to repurchase $250-$500 million worth of shares and pay dividends of $1.2 billion.
However, the company has been witnessing escalating costs and expenses. In the first six months of fiscal 2022, its cost of sales increased 9.6% year over year, while selling, general & administrative costs rose 0.4%. High restructuring expenses might also affect its margins and profitability. For fiscal 2022, it expects restructuring expenses of $150 million. Also, challenges related to supply-chain, labor, raw material costs and logistics persist.
Its high-debt profile remains a concern. Exiting second-quarter fiscal 2022 (ended March 2022), its long-term debt was high at $8,203 million. An increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
The Zacks Rank #3 (Hold) company’s shares have lost 1.4% compared with a 3.1% decline recorded by the industry in the past three months.
Stocks to Consider
A couple of better-ranked companies from the same space are discussed below.
In the past 30 days, AZZ’s earnings estimates have been stable for fiscal 2023 (ending February 2023). Its shares have lost 9.4% in the past three months.
Regal Rexnord Corporation (RRX - Free Report) presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 5.4%, on average.
In the past 30 days, Regal Rexnord’s earnings estimates have been stable for 2022. Its shares have lost 13.9% in the past three months.
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Emerson (EMR) Benefits From Strong End Markets Amid Risks
Emerson Electric Co. (EMR - Free Report) is poised to benefit from strength across its life sciences, chemical and power end markets in the quarters ahead. Improvement in electronics and semiconductor end markets is likely to drive its performance. Also, the company’s robust backlog level at both its Automation Solutions and Commercial & Residential Solutions segments is likely to support its top-line performance in the coming quarters. For fiscal 2022 (ending September 2022), the company predicts net sales growth of 8-10% year over year.
The company’s acquisition of Mita-Teknik (December 2021) has been expanding its presence in the renewable energy market. It acquired Progea Group and Open Systems International in the first quarter of fiscal 2021 (ended December 2020). While the Open Systems acquisition has been enhancing the company’s offerings under the Automation Solutions segment, the Progea buyout has been improving its offerings within the control and embedded software space. In May 2022, Emerson merged its industrial software businesses with Aspen Technology, Inc. (AZPN - Free Report) to create “new AspenTech”. The merger will enable it to gain control of a high-valued pure-play industrial software leader, expedite its software strategy and realize substantial synergies.
Its ability to generate solid cash flows allows it to reward shareholders apart from making acquisitions. For fiscal 2022, it anticipates a free cash flow of $3 billion. Also, in the first six months of fiscal 2022, the company paid dividends worth $613 million and repurchased shares worth $285 million. In November 2021, the quarterly dividend rate was hiked by 2%. For fiscal 2022, it intends to repurchase $250-$500 million worth of shares and pay dividends of $1.2 billion.
However, the company has been witnessing escalating costs and expenses. In the first six months of fiscal 2022, its cost of sales increased 9.6% year over year, while selling, general & administrative costs rose 0.4%. High restructuring expenses might also affect its margins and profitability. For fiscal 2022, it expects restructuring expenses of $150 million. Also, challenges related to supply-chain, labor, raw material costs and logistics persist.
Its high-debt profile remains a concern. Exiting second-quarter fiscal 2022 (ended March 2022), its long-term debt was high at $8,203 million. An increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
The Zacks Rank #3 (Hold) company’s shares have lost 1.4% compared with a 3.1% decline recorded by the industry in the past three months.
Stocks to Consider
A couple of better-ranked companies from the same space are discussed below.
AZZ Inc. (AZZ - Free Report) presently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 22.3%, on average.
In the past 30 days, AZZ’s earnings estimates have been stable for fiscal 2023 (ending February 2023). Its shares have lost 9.4% in the past three months.
Regal Rexnord Corporation (RRX - Free Report) presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 5.4%, on average.
In the past 30 days, Regal Rexnord’s earnings estimates have been stable for 2022. Its shares have lost 13.9% in the past three months.