Emerson Electric Co. EMR yesterday announced that it has successfully completed $810-million buyout of Tools and Test Equipment business of Textron Inc. TXT. The buyout, originally announced on Apr 18, will fortify Emerson’s position in the global professional tools market.
Rockford, IL-based Tools & Test primarily engages in manufacturing instruments related to test and measurement and diagnostics. It also produces utility and electrical tools. Prime tool brands offered by Tools & Test include Klauke and Greenlee. Tools & Test operates 11 manufacturing facilities globally and has a workforce of 2,300 people. It generated roughly $470 million in revenues in 2017.
Details of Buyout
As noted, the acquired assets of Tools & Test will be integrated with Ridge Tool business of Emerson. Ridge Tool is part of the company’s Tools & Home Products business — one of the two businesses comprising the company’s Commercial & Residential Solutions segment.
The combined business of Tools & Test, and Ridge Tool — anticipated to be worth more than $1 billion — will strengthen Emerson’s existing product offerings to electrical, plumbing and mechanical contractors. Moreover, it will fortify the company’s presence in European markets.
Furthermore, Emerson anticipates this buyout to boost cash flow immediately while predicts earnings accretion in fiscal 2019 (ending September 2019).
Snapshot of Emerson’s Inorganic Initiatives
We believe that the above-mentioned transaction is consistent with Emerson’s policy of acquiring meaningful businesses to gain access to new customers, regions and product lines.
Prior to this buyout, in May 2018, Emerson signed an agreement to acquire Aventics — a Germany-based leader in pneumatics technologies. The buyout will cost the company €527 million and will be completed in the fourth quarter of fiscal 2018 (ending September 2018). In January 2018, the company completed the buyout of ProSys Inc., thereby adding new technologies to its Operational Certainty initiative while the buyout of Cooper-Atkins has been strengthening its portfolio of cold chain technology.
It’s worth mentioning here that acquisitions/divestitures have a positive impact of 8% on sales growth in the second quarter of fiscal 2018 (ended March 2018).
Zacks Rank & Other Key Picks
With a market capitalization of nearly $43.8 billion, Emerson currently carries a Zacks Rank #2 (Buy). We believe that the company’s inorganic initiatives will add more vigor to its product offerings and help in keeping market sentiments positive for the stock.
Emerson’s share price gained 0.4% yesterday, closing the trading session at $69.44, while it has rallied roughly 2% in the past three months. The three-month gain comfortably surpassed 1.6% decline of the industry.
Also, the company’s earnings estimates have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate of $3.18 for fiscal 2018 reflects growth of 0.3% over the 60-day ago tally.
Emerson Electric Co. Price and Consensus
Emerson Electric Co. Price and Consensus | Emerson Electric Co. Quote
Other top-ranked stocks worth considering in the industry are Regal Beloit Corporation RBC and Eaton Corporation plc ETN. While Regal Beloit sports a Zacks Rank #1 (Strong Buy), Eaton carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last 60 days, earnings estimates for both the stocks have improved for the current year. Also, average positive earnings surprise for last four quarters has been 1.60% for Regal Beloit and 1.33% for Eaton.
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