Emerson Electric (EMR) is a diversified global technology company which is engaged in designing and supplying products and technology, and delivering engineering services and solutions in the industrial and commercial worlds. On August 6, 2013, the company reported fiscal third quarter earnings of $0.97 per share, which missed the consensus of analysts' estimates by $0.01. The stock is up 14.95% in 2013 and is losing to the S&P 500, which has gained 16.48% in the same timeframe, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth picking up some more of Emerson Electric right now for the technology sector of my dividend portfolio.
Emerson Electric currently trades at a trailing 12-month P/E ratio of 29.7, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.71 is currently fairly priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $3.88/share. The one-year PEG ratio (2.6), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that Emerson Electric is expensively priced based on a 1-year EPS growth rate of 11.38%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Emerson Electric boasts a dividend of 2.69% with a payout ratio of 78.7% of earnings while sporting return on assets, equity and investment values of 6.3%, 14.3% and 13%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.69% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 56 years with a 5-year dividend growth rate of 8.2%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 56.21 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line just crossed below the red line with the divergence bars increasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($60.88), I'm looking at $63.52 to act as resistance and $58.85 to act as support for a risk/reward ratio, which plays out to be -3.33% to 4.34%.
- On 06Aug13, the company reported fiscal third quarter earnings of $0.97/share on revenue of $6.34 billion versus estimates of $0.98/share and $6.44 billion.
- The company will sell a 51% stake in the embedded computing and power business to Platinum Equity for $300 million because it has become a commoditized business.
- Net income dropped to $194 million from $770 million the prior year on the $503 million pretax goodwill charge on the sale of the business.
- CEO David Farr says orders have begun to grow indicating the macro-economy is stabilizing and improving.
Emerson Electric is fairly valued based on future earnings but expensive on future growth prospects (one-year outlook). Financially, the dividend payout ratio is a bit higher than I like it but I don't doubt management will be able to continue to increase the dividend going forward. The technical situation of how the stock is currently trading is what is telling me that it can trade a bit lower for now as the stock has downward trajectory on the RSI and MACD charts. I'm going to buy a small batch in the stock for now in hopes that I can get a larger stake at a later date with a higher yield.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!