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Emerson to Gain From Solid Demand in Key Markets Amid Risks

Zacks Equity Research

On Feb 11, we issued an updated research report on Emerson Electric Co. EMR.

In the past month, this Zacks Rank #3 (Hold) stock has returned 7.6% compared with the industry’s rise of 4.4%.

Existing Scenario

Emerson expects that broad-based demand across most key markets, strong Maintenance, Repair and Operations projects as well as ongoing small to mid-sized brownfield and expansion projects will bolster revenues of its Automation Solutions segment. Moreover, continued robust demand in residential air conditioning and professional tools markets are likely continue driving the company’s Commercial & Residential Solutions business revenues. For fiscal 2019 (ending September 2019), it expects net sales for the year to increase 7-10%, with underlying sales to be up 4-7%.

Also, the company believes that greater operational efficiencies and lower tax expenses will consistently boost its profitability in the upcoming quarters. Notably, it has revised earnings view for fiscal 2019 from $3.55-$3.70 to $3.60-$3.75 per share.

Moreover, Emerson aims to provide higher remuneration to its shareholders on the back of dividend payments and share buyback offers. Notably the company has repurchased around $800 million shares in fiscal first quarter (ended December 2018) apart from providing regularly quarterly dividends. Moving ahead, the company intends to provide higher returns on the back of stronger free cash flow generation.

However, material cost inflation remains a cause of concern for Emerson. Notably, in the fiscal first quarter, unfavorable mix and material inflation hurt margins of the company’s Commercial & Residential Solutions segment by around 50 basis points. It expects inflation environment to persist in the quarters ahead.

Key Picks

Some better-ranked stocks from Zacks Industrial Products sector are iRobot Corporation IRBT, Rexnord Corporation RXN and Pioneer Power Solutions, Inc. PPSI. While iRobot sports a Zacks Rank #1 (Strong Buy), Rexnord and Pioneer Power Solutions carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot delivered average earnings surprise of 92.23% in the trailing four reported quarters.

Rexnord pulled off average positive earnings surprise of 12.82% in the previous four reported quarters.

Pioneer Power Solutions delivered average earnings surprise of 208.48% in the trailing four reported quarters.

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