The year 2019 has not been a smooth one for Emerson Electric Co. EMR. The leading provider of process control systems & solutions, industrial and commercial refrigeration technologies, air conditioning and heating products has been subject to a difficult global manufacturing market, high costs and expenses, and forex woes.
Emerson, which has a market capitalization of roughly $47 billion, has failed to impress investors with its recent financial results. The company surpassed estimates only once in the four trailing quarters, the average positive earnings surprise being 3.03%.The company’s fourth-quarter fiscal 2019 (ended Sep 30, 2019) earnings came in line with estimates, while sales lagged the same by 1.5%. Also, the company provided a soft sales outlook for both its reporting segments for fiscal 2020 (ending September 2020).
This Zacks Rank #4 (Sell) stock has gained 17.1%, underperforming the industry’s growth of 18.9% in the past three months. Further, the Zacks Consensus Estimate for fiscal 2020 earnings has moved south over a couple of months from $3.77 to $3.63. This indicates bearish sentiments for this stock, as 10 estimates moved downward versus none upward.
What is Ailing the Company?
Emerson has been witnessing persistent weakness in the global discrete manufacturing market due to soft automotive, semiconductor, packaging and textiles end markets. The company expects weakness in the global discrete manufacturing market to persist in the near term. For fiscal 2020, it predicts sales to be in the range of 3% decline to 1% increase year over year compared with 6% rise predicted earlier. On a segmental basis, net sales for Automation Solutions are likely to be in the band of 2% decline to 2% increase, while Commercial & Residential Solutions net sales are projected to decline 1% to 5%.
Also, over the past few quarters, the company has been witnessing escalating costs and expenses. Notably, it recorded year-over-year increase of 6.7% and 0.5% in the cost of sales in the third quarter and fourth quarter of fiscal 2019, respectively. In addition, in fiscal 2019, the company's selling, general and administrative expenses jumped 4.4% year over year.
In addition, given the company’s extensive geographic presence across the world, its operations are prone to global economic and political risks as well as unfavorable movement in foreign currencies. For instance, forex woes adversely impacted sales by 2% in both the third and fourth quarter of fiscal 2019. The company expects forex woes to persist in fiscal 2020, and adversely impact its revenues.
Amid such a scenario, we can consider the following four industrial stocks instead of Emerson, which are likely to offer good returns. These stocks either carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and have a healthy earnings surprise history. Also, these stocks have robust earnings growth expectations, evident from positive estimate revisions.You can see the complete list of today’s Zacks #1 Rank stocks here.
Albany International Corp. AIN: Based in Rochester, NH, Albany International is a global advanced textiles and materials processing company. The Zacks Rank #2 stock has rallied 22% compared with industry’s rise 20.2% over the past year. It is poised to benefit from strength in its engineered composites business along with improvements in productivity, and pricing and operational initiatives.
Albany International surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 21.27%. The Zacks Consensus Estimate for its current-year earnings has been revised 15.6% upward over the past 90 days. The company’s earnings are likely to grow 9.8% over the next three to five years.
Cintas Corporation CTAS: Based in Cincinnati, OH, Cintas designs, manufactures, implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products and first aid and safety products for diversified businesses throughout North America. It also operates in Europe, Asia and Latin America. It is poised to gain from improved product offerings, solid customer base, effective implementation of the enterprise resource planning system and the G&K Services buyout.
Shares of the Zacks Rank #2 company have rallied 59.7% compared with industry’s rise of 56% over the past year. Cintas outpaced estimates in each of the trailing four quarters, the average positive earnings surprise being 8.50%. The Zacks Consensus Estimate for current-year earnings has been revised 2.2% upward over the past 90 days. The company’s earnings are likely to grow 10.4% over the next three to five years.
DXP Enterprises, Inc. DXPE: Based in Houston, TX, DXP Enterprises is a leading products and service distributor that adds value and total cost savings solutions to industrial customers throughout the United States, Canada, Mexico and Dubai. The company is poised to benefit from strength in its end markets.
The Zacks Rank #1 stock has gained 43.6% compared with industry’s rise of 36% over the past year. DXP Enterprises surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 17.67%. The Zacks Consensus Estimate for its current earnings has been revised 3.3% upward over the past 90 days.
CIRCOR International, Inc. CIR: Based in Burlington, MA, CIRCOR International designs, manufactures and markets flow control solutions and other highly engineered products and sub-systems for markets including oil & gas, aerospace, power, process and industrial solutions. The company is poised to benefit from its diversified business structure, innovation, commercialization of new products and a solid customer base.
Shares of the Zacks Rank #1 company have rallied 117.9% compared with industry’s rise of 25.4% in the past year. CIRCOR International surpassed estimates twice in the trailing four quarters, the average positive earnings surprise being 11.92%. The Zacks Consensus Estimate for its current-year earnings has been revised 10.2% upward over the past 90 days.
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Cintas Corporation (CTAS): Free Stock Analysis Report
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