Emerson Electric (EMR) Q2 Earnings: Is a Beat in Store?

Emerson Electric Co. EMR is scheduled to report second-quarter fiscal 2018 results before the opening bell on May 1. In the last reported quarter, the company’s earnings came in at 58 cents per share, reflecting a beat of 7.4%.

We expect Emerson to score an earnings beat in the to-be-reported quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that Emerson has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Emerson has an Earnings ESP of +0.65%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Driving Better-Than-Expected Results

Emerson’s growth momentum is being driven by favorable trends in energy-related, hybrid and general industrial markets as well as strong demand in the HVAC and refrigeration markets. Notably, thriving HVAC and refrigeration business, strength in the United States & Asia along with high infrastructure spending is expected to boost growth. The company also believes telecommunications infrastructure demand to continue being one of the strongest growth drivers, going ahead.

Meanwhile, Emerson remains enthusiastic about its Commercial & Residential Solutions segment’s prospects as it is witnessing improving trends in the U.S., Europe and Asian construction markets. For the segment, the company’s focus on domains like human comfort, connected home, food quality, advancing energy efficiency at home and work is expected to prove conducive. Furthermore, favorable trends in power and life sciences as well as improving MRO demand are anticipated to boost the Automation Solutions segment’s growth. We believe selected investment opportunities coupled with positive trends in certain business areas offer Emerson modest growth opportunities.

Amid this backdrop, the Zacks Consensus Estimate for second-quarter revenues from the Commercial & Residential Solutions segment currently remains high at $1,495 million, reflecting growth of 19.4% sequentially. In addition, the company’s persistent focus on introduction of innovative products and technologies allows it to penetrate new markets and gain a competitive advantage over peers. This apart, Emerson’s restructuring efforts, undertaken over the past few quarters, are likely to benefit upcoming results.

However, the fact remains that prolonged softness in the oil and gas markets has affected both capital spending and operational expenditures of its clients. This, in turn, has hurt the company’s order rates in power generating alternators and electrical distribution businesses. Also, currency fluctuations and escalating restructuring charges remain concerns.

Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Rexnord Corporation RXN has an Earnings ESP of +1.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Plug Power, Inc. PLUG has an Earnings ESP of +18.92% and a Zacks Rank of 3.

Regal Beloit Corporation RBC has an Earnings ESP of +0.03% and a Zacks Rank #3.

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