Emerson strikes the right balance between growth and safety

Posted Apr 22nd 2008 5:21PM by Joseph Lazzaro
Filed under: Stocks to Buy

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Emerson Electric is worth a review.

Emerson Electric Co. (NYSE: EMR) is an industrial conglomerate that operates more than 60 diverse businesses in five business segments: process management, industrial automation, network power, climate technologies, and appliance/tools.

In general, analysts expect Emerson's FY 2008 revenue to increase 10-12% on solid performances from its network power and process management segments.

Further, analysts expect EMR to continue to benefit from the increasing demand for power from emerging market economies. Also, look for Emerson to take advantage of increased U.S. corporate spending on efficiency improvements (through automation and other systems) -- a typical corporate response when quarterly revenue targets are not achieved.

Meanwhile, the company's new product introductions remain adequate. Finally, core component costs, while rising, are not unreasonable. The Reuters FY 2008/FY 2009 EPS consensus estimates for EMR are $3.02 to $3.35

The risks? A slowdown in global economic growth would hurt EMR's results. Analysts are also keeping an eye on EMR's core component and skilled labor costs.

The First Call mean rating for EMR is: Buy [17 firms]. Mean 2008 target: $58 [high: $64, low: $53].

Stock Analysis: Emerson Electric is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from EMR's shares. Sell/Stop Loss if you were to purchase shares in this company: $37.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: automation, emerging markets, Emerson Electric, EMR, power, power generation

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Reader Comments (Page 1 of 1)

4-22-2008 @ 6:53PM

Kent said...

Emerson models its businesses after GE's and does appear to be more succcessful at it than their mentor. Their top management maintains a daily read on each of their divisions. Through this style of management (harsh at times) Emerson identifies and corrects those problems before they get out of hand. They also continue their growth through acquisitions and those acquisitions are all focused on their core businesses with about the same margins as opposed to other conglomerates that have divisions that are incompatible with each other and have no intermingling synergies.