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Emerson Electric (EMR) saw its Chaikin Power Gauge rating go from neutral to Bullish last Monday. The company reports earnings before the opening on Tuesday May 5. EMR has had bullish Chaikin Money Flow since late January, even as the stock was making new lows. The institutions that were buying EMR, as indicated by the positive Money Flow, have been rewarded as the stock has broken its long-term downtrend.
With analyst expectations very low, Emerson Electric may exceed estimates but guidance may be poor, which would push EMR stock lower. Any price weakness in reaction to their 2nd quarter earnings report on Tuesday would be a buying opportunity. Emerson has a long history of dividend increases and currently yields a very attractive 3.2%.
Emerson Electric designs and manufactures a wide variety of electrical and electromechanical systems, as well as the software to run them. Their diverse product lines address equipment needs in process control, industrial automation, heating and air conditioning and telecommunications.
EMR has had 3 big headwinds that have hurt revenue and earnings over the past 12 months:
- Weak capital expenditures in the Energy Sector
- Strength in the U.S. dollar
- Weakness in the global economic picture
Some of these influences are improving with the recent weakness in the U.S. dollar and strength in the oil refinery stocks where EMR generates a lot of its energy related revenue. The company has said that 2015 is a transition year but is projecting significant revenue and earnings improvement over the next 3 years (fiscal 2015 ends in September).
The company expects to buy back 15% of its stock with a $6 billion buyback program and will likely increase its dividend every year for the foreseeable future. They project a 9% increase in the dividend in fiscal 2015. There is a lot of bad news built into EMR’s price to earnings ratio of 15.2x, which is historically low compared to its median P/E ratio of 17.4x. With a 52-week high of $68.80 there is plenty of upside potential if investors look beyond the current headwinds for the company.
The fact that the Chaikin Power Gauge rating has turned bullish, combined with positive Money Flow encourages us to want to buy any short-term weakness in EMR.
Emerson Electric has a bullish Chaikin Power Gauge rating and is in the strong Electrical Machinery industry group. The bullish Power Gauge rating is driven by a variety of factors in our 20-factor model. These include high return on equity, strong Chaikin Money Flow and Insider buying.
Plus:
Chaikin Educational Webinars: How to Find Winning Stocks
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
