I am long-term Emerson Electric (EMR) in my grandson’s account, but it never ceases to amaze me how “The Street” can over-react to almost any negative news. Since reporting record year-end results on November 1, (fiscal year ends September 30) EMR shares have slumped some 13% from $52 down to around $45/share. They even increased the annual dividend 16% to $1.60 from $1.38. It seems that because earnings were a couple of pennies shy of what analysts were expecting, some EMR shares just had to be sold. Just what do they want? Year-end results set new earnings and sales records, showing revenues up 15% to $24.2 billion with net earnings up almost 25% to $3.26/share. Return on total capital increased to 19.6% from 2010's 14.7%, and operating cash flow generated $3.2 billion, while free cash flow produced $2.6 billion. They also have slightly over $2 billion in cash assets, with a long-term debt of $4.3 billion.
This conglomerate manufactures a very broad range of electrical products and equipment. It spent $555 million in 2011 on research and development, up from $473 million in 2010. Also, EMR has built up a backlog of $6 billion. Net profit margins have been averaging around 8.6% since 2001. Overseas sales account for 50% of revenues. Dividends have been raised for 55 consecutive years, currently paying $1.60/share, which is double its 2004 annual payout. Earnings should easily grow to over $3.60/share in 2012. There are currently 735 million outstanding shares, which is down from the 842 million outstanding in 2003.
EMR has a 10-year average P/E of 19. It is presently trading at 14 times its trailing 12 months P/E, and 11 times its forward 12 months P/E. With just a modest increase to a more “normal” P/E of say 16-17, EMR looks like a $60 stock to me.
Disclosure: I am long EMR.