Emerson Electric Co. EMR continues to struggle with the headwinds that have marred its operational performance over the past few quarters. We expect that a continuous rise in operating expenses, among other factors, will hinder the company’s growth.
It’s not surprising that the stock has also put up a dismal show in recent times. In the past month, Emerson has lost 10.7%, almost on par with the industry’s decline of 10.6%.
Read on to find the major factors hurting the Zacks Rank #4 (Sell) company’s growth prospects, and why it may be prudent to avoid the stock at the moment.
Factors at Play
Rising cost of sales has been a major cause of concern for Emerson over the last few quarters. Notably, the metric escalated 8.8% and 8.4% in the second and first quarter of fiscal 2019, respectively. Also, the company’s gross margin suffered from high accounting charges, acquired assets and unfavorable mix in the fiscal second quarter.
Also, given the company's extensive geographic presence, its operations are more prone to global economic and political risks as well as unfavorable movement in foreign currencies. For instance, Emerson expects forex woes to persist in fiscal 2019, with adverse impact of 2% predicted on sales. This apart, the company’s policy of acquiring a large number of companies adds to the integration risks.
Moreover, on a P/E(TTM) basis, the stock looks overvalued compared with the industry with respective tallies of 19.5x and 15.9x for the past three-month period. This makes us cautious about the stock. Further, the Zacks Consensus Estimate for fiscal 2019 earnings has moved south over the past month from $3.70 to $3.66. This indicates exceedingly bearish analyst sentiment, reflected by eight downward estimate revisions versus none upward, over the same time frame.
Stocks to Consider
Some better-ranked stocks from the same space are Roper Technologies, Inc. ROP, Actuant Corporation ATU and DXP Enterprises, Inc. DXPE. While Roper sports a Zacks Rank #1 (Strong Buy), Actuant and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Roper surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 8.43%.
Actuant surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 11.01%.
DXP Enterprises outpaced estimates thrice in the preceding four quarters, the average earnings surprise being 48.47%.
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