Charged Up Over Emerson Electric

04/29/2020 5:00 am EST

Focus: INDUSTRIALS

John Eade

Chairman & CEO, Argus Research Group

In our experience, when the stock price of a well-managed, financially strong company under our fundamental coverage falls to the point that the dividend yield is above 3.5%, the stock offers value for long-term investors, suggests John Eade, an analyst with Argus Research.

The current yield on Emerson Electric (EMR) is 3.9%. The company is a global leader in the design, manufacture and sale of electrical, electromechanical, and electronic products. The shares are a component of the S&P 500. The company has approximately 76,500 employees.

We think this well-managed company is on track to achieve its long-term goals of raising margins and growing earnings. Over time, we expect it to generate high single-digit EPS growth, driven by 3%-4% revenue growth, margin improvement, and share buybacks.

However, near-term trends are more problematic as top-line growth is slowing amid fallout from the trade war and now the coronavirus. The pandemic has had an impact on results. The global health crisis, coupled with oil market volatility, has significantly lowered demand in many of Emerson’s end markets.

EMR shares are trading at 15-times our FY21 EPS estimate, below the midpoint of the five-year historical range of 13-22. On price/sales, the shares are trading below the midpoint of the five-year range.

The balance sheet is solid. Indeed, Emerson has one of the market’s longest dividend growth streaks, with 63 consecutive years of rising dividends.

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