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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.”


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.


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

Fool On!


7 Comments – Post Your Own

#1) On September 27, 2009 at 2:47 AM, DarthMaul09 (29.12) wrote:

Congrats, your blog was listed as a reference in the google finance site for this stock.  I saw it there when I was following up on your lead.  The stock price has gone down recently with everything else.  I suspect that  if it gets an analyst downgrade, then it wil probably a winner, since they would likely want the price driven down before they make their purchase.  I know what you are probably thinking, but sometime conspiracy theories true.

What I was looking for is insider buying or selling.  Next stop, the e-trade site.


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#2) On September 27, 2009 at 3:00 AM, DarthMaul09 (29.12) wrote:

From e-trade:

The last EMR insider buy occurred when BUSCH AUGUST A III purchased a total of 10,000 shares on August 17, 2009. In the last 5 years insiders have on average purchased 13,042 shares each year.

Neutral rating from Reuters and S&P.

Market edge second opinion has a Long recommendation.  Price was $37.2 when they recommended it on 8/31/09.  The moving averages are all positive, except for the last 10 days.

I added it to my watch list.  Just waiting for this correction to bottom out before making any new bets.

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#3) On September 27, 2009 at 3:29 AM, uclayoda87 (28.48) wrote:

From Anticitrade's web site

Rank 617, current price 38.92, fund. price 35.08, antipat. return -9%

I think I would hold out for a price less than $35.  The dividend is appealing but there is no need to buy it at a premium to its fundamental price, especially with the market trending downward.  In a few days you might be able to buy it at less than $35.

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#4) On September 27, 2009 at 10:54 AM, amassafortune (29.20) wrote:

rd - Emerson is a well-managed company and has been for all 26 years that I have owned the stock. I agree with UCLA, but would be even more aggressive on the target price - I like EMR at $32 or less right now. I believe the board will increase the dividend when they meet in early November, but probably at a meager level just to keep the record of increases in place. 

Emerson always strives to be #1 or #2 in any category in which they choose to compete. They also always have an exact plan of where the next $50-100 million of savings will come from. The plan to put all 200+ worldwide sites on an Oracle base is well underway and will yield better, more compatible, and less expensive information. Emerson always uses downturns to lock in lower prices from suppliers. As always, EMR will emerge from these times more competitive than ever but I expect a serious pullback from this historical market run-up since March. I would not buy at this level, but a better entry point is probably only 1-2 months away. 

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#5) On September 27, 2009 at 12:04 PM, DarthMaul09 (29.12) wrote:

Thanks.  Just moved this from my watch list to my Christmas list with a buy price of less than $33 (trying not to be too greedy).

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#6) On September 27, 2009 at 12:25 PM, uclayoda87 (28.48) wrote:

I would buy at $32 based on the arguments above.  I agree with building that Christmas list now.  Not every company that I would like to buy will be cheap then, but hopefully some will be.  I really don't want to hold this much cash for too long.  If none of my favorite stocks reach a good buy price, then I will move into CEF on a price pull back.

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#7) On September 27, 2009 at 7:04 PM, rd80 (94.76) wrote:

Thanks to all for the comments.

Seems like the consensus is solidly in the "great company, wait for a better price to buy" camp.

I was thinking a target 'start buying' price of something like $33.  4% yield at the current payout is a nice round level that should offer some support.


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