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Emerson Wraps up Sale of Network Power to Platinum Equity

Zacks Equity Research

Global manufacturing and technology company, Emerson Electric Co. EMR wrapped up the sale of its Network Power business to Platinum Equity and a group of co-investors for a consideration of $4 billion. Emerson retains a subordinated interest in the business.

The company has been aggressively restructuring its portfolio in recent months, with huge acquisitions as well as significant divestments. In fact, investors have been optimistic about the company’s efforts, as Emerson’s shares appreciated 7.3% over the last three months, eclipsing the Zacks categorized Machinery – Electrical industry average of  negative 0.6%.

The company recently stated that the sale of three of its businesses – Network Power, Leroy-Somer and Control Techniques – will generate $5.2 billion in proceeds. Emerson believes that undertaking these extensive streamlining measures will free up resources which can be reinvested in core business areas to boost growth.

Once the restructuring is complete, the company expects to be better equipped to cross-leverage its remaining portfolio and navigate businesses in an effortless manner. The company has also shared its plans to divest the ClosetMaid business by 2017. Further, the company is focusing on devising cost cutting and divestment plans to unlock greater benefits.

The Network Power divestment is a significant step in strategic repositioning of Emerson’s portfolio, and will help it streamline the company and unlock future growth opportunities.

Network Power will be rebranded as Vertiv and will thereafter operate as a stand-alone entity in Platinum Equity’s portfolio. In Emerson’s recent reports, the business generated revenues of about $4.4 billion in fiscal 2016. The Network Power company is a leading provider of thermal management, A/C and D/C power, transfer switches, services and information management systems for the data center and telecommunications industries.

EMERSON ELEC CO Price and Consensus

EMERSON ELEC CO Price and Consensus | EMERSON ELEC CO Quote

In fact, Emerson has been actively making acquisitions as well, as part of its strategic portfolio repositioning strategy. In the past three months, the company has made several buyouts as it seeks to expand its capabilities.

In August, the company inked an agreement to purchase Pentair Valves & Controls – a business unit of Pentair plc PNR – for $3.15 billion. Integrating Pentair’s Valves & Controls business will enable Emerson to reinforce its foothold in control, isolation, pressure relief valves and actuation business lines. It is trying to strengthen its automation portfolio and Pentair Valves & Controls is a strategic fit.

In addition, the company entered into an agreement to buy leading non-intrusive corrosion monitoring technologies provider, Permasense Limited. The buyout will fortify Emerson’s footprint in the integrity and corrosion management solutions business. Post acquisition, Permasense will be integrated with Emerson’s Rosemount portfolio of analytical technologies.

Emerson also announced that it is expanding its portfolio in advanced flow measurement and control technologies, with the acquisition of FMC Technologies, Inc.’s FTI Blending & Transfer Systems business. It also took a significant step to expand its global capabilities in fresh food monitoring, with the acquisitions of Locus Traxx and PakSense.

The company believes that strategic mergers and acquisitions, along with its restructuring initiatives, will help achieve over $20 billion in sales.

Despite enjoying a dominant foothold in the energy market, Emerson’s business has been hurt by sustained weak global economic circumstances, depressed industrial spending and slowdown in oil and gas markets. These conditions have affected both capital spending and operational expenditure of clients, thus marring Emerson’s prospects. With the current economic factors at play, Emerson anticipates these dull prospects to continue in 2017.

The company has been witnessing some activity on the earnings estimate revision front. Analysts have become increasingly bearish on the company over the past couple of months, as the Zacks Consensus Estimate for fiscal 2017 earnings moved south over the past two months, from $2.80 to $2.41, thanks to five downward estimate revisions versus just three higher.

Emerson presently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A better-ranked stock in the same space is II-VI Incorporated IIVI, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

II-VI Incorporated has registered a remarkable positive average surprise of over 39.8% in the four trailing quarters, driven by four strong consecutive beats.

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