On Dec 8, 2014, we issued an updated research report on Emerson Electric Co. (EMR), a diversified global manufacturing and technology company.
In November, the company reported strong fourth-quarter 2014 results aided by robust growth in bottom line. Emerson has been benefiting from the increasing demand for energy-efficient infrastructure across the globe. Notably, with a rise in emerging economies, there is an increased investment in infrastructures that are needed to support a modern economy.
Moreover, the company’s residential segment, especially its air conditioning, professional tools and food waste-disposer businesses, are likely to benefit from increasing investments in North America. Emerson is also expected to gain from the steady adoption of central air conditioning in Asia, driven by the emergent middle class and broader energy-efficiency initiatives.
Further, Emerson has been restructuring its business strategically to drive organic growth, while augmenting competitiveness at the same time. The company has already started divesting underperforming assets to use the cash in its core business for repurchasing shares. Moreover, Emerson is making efforts to expand its presence in the emerging markets which are expected to grow at a significantly higher rate compared to the developed economies.
However, declining margins and adverse macroeconomic conditions are likely to negatively impact the company’s financials. Further, revenues are affected by reduced infrastructure spending in the telecom industry. Signs of slowdown in key regions like China also remain a concern. Moreover, though this quarter witnessed some improvement in the Network Power orders, volatility in demand is still a problem. Further, the company’s business is prone to be impacted by currency fluctuations as about 60% of its revenues are sourced internationally.
Emerson currently has a Zacks Rank #3 (Hold). Some better-ranked stocks that can be considered at present include Pioneer Power Solutions, Inc. (PPSI), AO Smith Corp. (AOS) and Middleby Corp. (MIDD). While Pioneer Power Solutions sports a Zacks Rank #1 (Strong Buy), both AO Smith and Middleby carry a Zacks Rank #2 (Buy).
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