On Jan 3, we reiterated our Neutral recommendation on
Emerson Electric Company
) largely due to its modest fourth quarter performance. We prefer
to remain on the sidelines until we see substantial organic
growth and improvement in the overall industry environment.
Why a Neutral Recommendation?
On Nov 25, Emerson reported fourth-quarter 2013 earnings per
share of $1.18 a share, which was 6.3% above the Zacks Consensus
Estimate of $1.11. The company's earnings surged 203% year over
year. Despite a sluggish economy, underlying growth across the
company's markets and segments remained strong during the
The company's modest operational execution and healthy returns
from restructuring initiatives led to its growth. During the
reported quarter, Emerson's revenues increased in regions like
Latin America, Middle-East, Asia, Canada, Europe and Africa;
whereas underlying sales declined in major economies like the
The company is well-positioned to benefit from the long-term
global trends of infrastructure spending and improved energy
efficiency. Emerson is also expected to benefit from the steady
adoption of central air conditioning in Asia driven by the
emerging middle class and broader energy efficiency initiatives.
Also, increasing investments in North America are likely to have
a positive impact on the company's business.
Going forward, Emerson's cost-cutting and restructuring
initiatives are expected to significantly benefit the company.
For the last two years, Emerson is focusing on reducing costs
while boosting profits.The company is also focusing on
redeployment of capital in core areas by divesting
underperforming assets like its business in embedded power and
However, Emerson's business is more prone to global economic
and political risks as its operations are spread across the
world, majority of which are outside the U.S. The European
economy continues to appear weak, as the recovery process has
been slow after the sovereign debt crisis. Moreover, as
oil-prices are on a decline, the company's business in
Middle-East is likely to be impacted negatively.
In the reported quarter, the company was impacted by 2% drop
in sales owing to sluggish economic conditions in mature markets,
including U.S.. Moreover, revenues declined in two of its five
operating segments. In the quarter, the company also had to take
additional impairment charges for the ongoing divestment of its
embedded, computing and power business.
Thus, we prefer to remain on the sidelines and maintain our
Neutral recommendation on Emerson.
Other Stocks to Consider
Emerson currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the oil & gas and utilities sector
Pioneer Power Solutions, Inc.
Alamo Group, Inc.
). EnerSys and Pioneer Power Solutions both carry a Zacks Rank #1
(Strong Buy), while Alamo Group carries a Zacks Rank #2
ALAMO GROUP INC (ALG): Free Stock Analysis
EMERSON ELEC CO (EMR): Free Stock Analysis
ENERSYS INC (ENS): Free Stock Analysis Report
PIONEER PWR SOL (PPSI): Get Free Report
To read this article on Zacks.com click here.