Here’s Why You Should Retain Emerson (EMR) in Your Portfolio

Emerson Electric Co. EMR has been experiencing healthy demand across most of its end markets. Solid demand in the process and hybrid markets is boosting the company’s underlying orders. Management anticipates sales in the process and hybrid end markets to be robust in fiscal 2024 (ending September 2024), driven by strength in chemical, life sciences, LNG, metals and mining, and sustainability and decarbonization end markets.

Within the Intelligent Devices business unit, the company is seeing strength in the measurement and analytical, and final control businesses supported by strong demand in the hybrid and process end markets. Given the strength across its end markets, Emerson expects net sales to increase 12.5-14.5% from the year-ago levels in the second quarter of fiscal 2024 (ending March 2024).

Emerson intends to strengthen and expand its businesses through buyouts. In the fourth quarter of fiscal 2023, the company completed the acquisitions of Afag and Flexim. The Afag buyout expanded EMR’s capabilities in factory automation, helping it expand into battery manufacturing, automotive and electronics markets. The acquisition of Flexim expanded its automation portfolio and measurement capabilities.

Also, the buyout of National Instruments in October 2023 strengthened EMR’s position in semiconductor, electronics, transportation & electric vehicles and aerospace & defense markets.

Management remains committed to increasing shareholders’ value through dividend payments and share repurchases. For instance, in first-quarter fiscal 2024 (ended December 2023), it paid out dividends of $300 million and repurchased common stocks worth $175 million. In October 2023, the company hiked its dividend by 1%.

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In the past month, the Zacks Rank #3 (Hold) company has gained 6.4% compared with the industry’s 5.8% growth.

However, EMR has been witnessing softness in its test and measurement business within the Software and Control segment. In the fiscal first quarter, test and measurement business’ orders declined 17% year over year owing to the continued softness in discrete and semiconductor markets, and ongoing weakness in China.

Escalating operating costs and expenses have been weighing on its profitability. For instance, in the fiscal first quarter, its cost of sales jumped 25.6% year over year while selling, general and administrative expenses increased 24%. Pre-tax margin came in at 3.4% in the quarter, down from 12.5% in the year-ago fiscal quarter.

Stocks to Consider

Some better-ranked companies from the same space are discussed below.

Powell Industries, Inc. POWL presently sports a Zacks Rank #1 (Strong Buy) and has a trailing four-quarter earnings surprise of 77.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for POWL’s fiscal 2024 (ending September 2024) earnings has increased 44.1% in the past 60 days. Shares of Powell Industries have soared 89.6% in the past six months.

Zurn Elkay Water Solutions Corporation ZWS presently carries a Zacks Rank #2 (Buy). ZWS delivered a trailing four-quarter average earnings surprise of 12.4%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has increased 3.6%. Shares of the company have risen 16.9% in the past six months.

Eaton Corporation plc ETN presently carries a Zacks Rank #2. ETN delivered a trailing four-quarter average earnings surprise of 4.8%. In the past 60 days, the Zacks Consensus Estimate for Eaton’s 2024 earnings has increased 2.4%. The stock has increased 43.8% in the past six months.

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