Portfolio Power - But is the time right?
September 26, 2009
– Comments (7) |
RELATED TICKERS: EMR
Emerson Electric has turned up on enough of my screens and in articles I’ve read that it was time to give the company a closer look.
From the company’s website,
“Emerson (NYSE: EMR) is a diversified global manufacturing and technology company. We offer a wide range of products and services in the areas of process management, climate technologies, network power, storage solutions, professional tools, appliance solutions, motor technologies, and industrial automation. Recognized widely for our engineering capabilities and management excellence, Emerson has more than 140,000 employees and approximately 255 manufacturing locations worldwide.”
The EMR Investor Relations 2009 fact sheet provides the following sales breakdown by business segment:
Process Management 26%
Industrial Automation 19%
Network Power 25%
Climate Technologies 15%
Appliance and Tools 15%
Sales are diversified geographically with 46% from the United States, 23% from Europe, 18% from Asia and 13% from other regions.
My favorite highlight on the fact sheet? “52 consecutive years of increased dividends.”
Positives:
The current 3.4% yield is competitive with a 10-year Treasury and, if the track record continues, EMR shareholders will get a raise with the next dividend check.
EMR has maintained positive earnings with good dividend coverage through a very difficult business cycle for an industrial company. TTM payout ratio is 52%, leaving some cushion against a cut and a little room to raise the payout.
The business areas set the stage for good earnings power when the economy starts to recover.
The company operations are spread across several consumer and industrial segments and are well diversified globally.
EMR has been aggressively reducing inventory and cutting costs. The most recent earning call had a lot of focus on cost cutting.
EMR is taking advantage of weak market prices to make acquisitions. During the conference call, the CEO stated they expect to make $.15 – 2 billion of acquisitions next year.
Weaknesses and Concerns:
On 24 Sep, EMR issued a statement showing sales are down approximately 25% year-over-year, but that sales are stabilizing.
Earnings estimates for the next two quarters are 60 and 43 cents per share. That doesn’t leave a lot of room for a dividend hike from the current 33 cent payout.
Conclusion:
An investment in EMR is dependent of your view of the overall economy. If orders are stabilizing and about to improve, current prices look attractive. If the economy slips backwards or remains stagnant for an extended period of time, EMR will be hard pressed to raise or even maintain the current payout level.
There’s a lot to like about EMR, but I’d like to have more confidence that the economy is improving or at least stabilizing before buying. For now, it goes on my watch list.
Disclosure: No position in EMR
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Russ
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