Emerson Electric Co. EMR is a promising investment option at the moment. The company currently holds a Zacks Rank #2 (Buy) and has a VGM Score of B.
Reasons to Add the Stock
Solid Top-Line Prospects: Higher turnaround activity, ongoing energy projects as well as stronger maintenance, repair and overhaul demand are likely to boost Emerson’s near-term revenues from the oil and gas end-markets. Consistent specialty and petrochemical optimization as well as upgrade projects will drive the top line from the chemical markets.
Additionally, Emerson projects tailwinds in the air-conditioning markets will continue to strengthen the top line in the second half of fiscal 2018 (ending September 2018). Going forward, ongoing greenfield investment activity is expected improve revenues in the global power business.
Currently, the company expects revenue growth in the range of 7-7.5% in third-quarter fiscal 2018 (ended June 2018). The top line growth for fiscal 2018 is pegged at 13%.
Per our estimates, Emerson’s year over year revenue growth is currently pegged at 13.3% and 5.7% for fiscals 2018 and 2019, respectively.
Acquisitions: Emerson has been making acquisitions that are expected to be conducive to core business. The company is on a constant lookout for small bolt-on and strategic buyouts to attain sales target of up to $20 billion and cash flow to more than $3.2 billion over a span of next five years. In July, the company successfully acquired Tools and Test Equipment business from Textron Inc. TXT. This buyout will fortify the company’s position in the global professional tools market. In May 2018, the company inked an agreement to acquire Aventics — a Germany-based leader in pneumatics technologies — for strengthening its fluid automation technologies portfolio.
Upbeat Profitability: Emerson has pulled off an average positive earnings surprise of 4.55% in the last four quarters. The company reported better-than-expected earnings in second-quarter fiscal 2018. The company projects that strategic acquisitions, stronger end-market demand, previously-made restructuring moves and ongoing cost-reduction efforts will continue to drive profits in the upcoming quarters.
Currently, the company expects to generate earnings in the range of $3.10-$3.20 per share in fiscal 2018.
Per our estimates, Emerson’s year-over-year earnings growth is currently pegged at 20.5% and 15.2% for fiscals 2018 and 2019, respectively.
Shareholders’ Remuneration: Emerson provides returns to its shareholders in the form of dividend and share buyback offers. In the first half of fiscal 2018, the company returned nearly $1.4 billion to shareholders through stock buybacks and dividend payments.
Price Performance
In the past year, Emerson’s shares have returned 16%, against 1% decline of the industry.
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Other Stocks to Consider
A few other top-ranked stocks within the same space are listed below:
Regal Beloit Corporation RBC sports a Zacks Rank #1 (Strong Buy). The company’s earnings per share (EPS) are projected to grow 10% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
A. O. Smith Corporation AOS holds a Zacks Rank #2. The company EPS is predicted to rise 12.10% in the next three to five years.
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