• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Industrials

Emerson Business Sales Signal Pivot to Recharge Growth

A leaner, meaner Emerson, now has more even more fire power to pursue strategic acquisitions.
By JAMES GENTILE Aug 02, 2016 | 11:09 AM EDT
Stocks quotes in this article: EMR

The core business at Emerson Electric (EMR) remains in the throes of a weak period for Process and Industrial Automation. As a result, the company has lowered guidance again to reflect the current realities of the business. Emerson now expects sales to decline 9%-10% in 2016.

The company is mired in competitive currency market share shifts, while other smaller players nip at the heels of this global behemoth. Oil and gas and core industrial markets, obviously, remain weak.

In response, there is an underlying reallocation of the portfolio to redesign Emerson for future growth. This morning, the company announced the sale of its electric motor, drives and power business to Japanese company Nidec. And in a "two-fer," the company announced the $4 billion sale of the Network Power segment to Platinum Equity. In total, $5 billion-plus to Emerson.

Six of one, and half a dozen of another: A leaner, meaner Emerson, led by the smart and aggressive David Farr, now has more even more fire power to pursue strategic acquisitions in Automation and Commercial & Industrial. There would probably be more reasonably priced deals in C&I. In Automation, valuation multiples have increased, especially if the company would like to expand into markets such as medical or technology, where growth is on a different cycle than the core oil/gas/industrial markets where Emerson dominates.

I wonder if there is one big deal that Emerson can make that can change the dynamic of the portfolio. There are assets out there. We'll probably see a group of smaller deals, though, as they bolt-on strategic growth.

Restructuring continues, and margins are holding up reasonably well, despite this weaker revenue environment. Aside from the usual continuous fixed and variable cost management tools inherent in many industrial companies, I'm not sure there is a lot more the Emerson can take out at this point. We have to wait for the top line to recover for margins to expand materially from here.

We can get paid while we wait, as shares of EMR are currently yielding 3.5%. Farr and the gang just added an element of optionality with the announced sales this morning, too. So long-term, we can imagine a slightly different, and perhaps "growthier" Emerson Electric.

Could be worse.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Gentile had no positions in the securities mentioned.

TAGS: Investing | U.S. Equity | Industrials | Mergers and Acquisitions

More from Industrials

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

Honeywell Jumps Into Vaccine Distribution but its Prices May Weaken

Bruce Kamich
Jan 15, 2021 9:14 AM EST

Let's review the charts and indicators.

Another Look at the Charts of Plug Power

Bruce Kamich
Jan 8, 2021 9:56 AM EST

Pay attention to the Japanese candlestick.

3 Breakout Candidates Living in the Materials World

Ed Ponsi
Jan 7, 2021 8:30 AM EST

The charts of U.S. Steel, Freeport-McMoRan and DuPont suggest that the surge in their shares may have just begun.

Markets React to Georgia Elections, Banks and Industrials to Gain, Oil Reduced

Stephen Guilfoyle
Jan 6, 2021 7:24 AM EST

I will have to give some of my favorite tech names a haircut in the name of balance. Hopefully everyone gained some exposure to gold.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • 08:35 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/13/2021

    Lower highs... SPX (Long-Term View) The 1/8/2...
  • 08:07 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 1/12/2021

    Watch if the recent trend of lower highs continues...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login