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Wisdom consists of the anticipation of consequences.

Norman Cousins

Two splendid companies in the industrial good sector are going to be examined in detail and pitted against each other in the hopes of finding a champion. Additional data has also been provided on three other plays for investors who might be looking for other ideas. At the end of the article we will offer our opinion as to which one we think is better.

Reasons to be bullish on Emerson Electric Company (EMR):

  • EMR is optimistic about its outlook for 2012. Management expects improvement in the telecommunications and HVAC segments, and the outlook in the industrial business segment remains strong. Management expects underlying sales and orders growth in the 4%-6% ranges and sales growth in the 2%-6% ranges. Operating profit margins are expected to be in the 18% ranges and pretax margins are expected at approximately in the 15%-16% ranges.
  • It has a marvelous record of consecutively increasing dividends for 55 years.
  • It has been paying dividends since 1947.
  • It sports a huge levered free cash flow rate of $2.64 billion.
  • A good five-year dividend growth rate of 9%.
  • A good three-year total return of 64%.
  • A great long-term debt to equity ratio of 0.40.
  • EPS growth rate is projected at 11.5% for the next 3-5 years.
  • A good five-year ROE average of 24%.
  • Acceptable quick and current ratios of 1.12 and 1.4.
  • Net income has increased from $1.7 billion in 2009 to $2.48 billion in 2011.
  • EBITA increased from $3.39 billion in 2009 to $4.7 billion in 2011.
  • Cash flow per share rose from $3.26 in 2009 to $4.46 in 2011.
  • A good payout ratio of 51% and even better five-year average of 47%.
  • Sales rose from $2.09 billion in 2009 to $2.42 billion in 2011.
  • Annual EPS before NRI increased from $2.66 in 2007 to $3.24 in 2011.
  • A good interest coverage ratio of 14.2.
  • It has a good free cash flow yield of 6.71%.
  • A decent beta of 1.4 which makes it a pretty good candidate for covered writes.
  • $100K invested for 10 years would have grown to $239K; if the dividend were reinvested the rate of return would be higher.

Reasons to be bullish on ABB Ltd (ABB):

  • A very strong five year dividend growth rate of 39.46%.
  • A very good levered free cash flow of $1.56 billion.
  • A decent three-year total return of 39%.
  • A 5 year sales growth average of 7%.
  • A projected 3-5 year EPS growth rate of 11.6%.
  • A good five-year ROE average of 24.6%.
  • A good quarterly revenue growth rate of 15.2%.
  • Net income increased from $29 billion in 2009 to $31 billion in 2011.
  • EBITDA increased from $49 billion in 2009 to $57 billion in 2011.
  • Cash flow per share increased from $1.52 in 2009 to $1.88 in 2011.
  • An excellent long-term debt to equity ratio of 0.20.
  • A 5 year cash flow average of 1.49.
  • A good quarterly earnings growth rate of 18.6%.
  • Sales increased from $31.7 billion in 2009 to $37.9 billion in 2011.
  • A decent yield of 3.6%.
  • An excellent payout ratio of 44% and an even better five-year average payout ratio of only 18%.
  • A fantastic interest coverage ratio of 32.8.
  • $100K invested for 10 years would have grown to $798K; if the dividends were reinvested the rate return would be even higher.

Company: Emerson Electric Company

Levered Free Cash Flow = 2.64B

Basic Key ratios

  1. Percentage Held by Insiders = 0.85
  2. Market Cap ($mil) = 38007

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 6.85
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -22.71
  1. EBITDA ($mil) 12/2011 = 4721
  2. EBITDA ($mil) 12/2010 = 3956
  3. EBITDA ($mil) 12/2009 = 3397
  4. Annual Net Income this Yr/ Net Income last Yr = 14.6
  5. Cash Flow ($/share) 12/2011 = 4.46
  6. Cash Flow ($/share) 12/2010 = 3.8
  7. Cash Flow ($/share) 12/2009 = 3.26
  1. Sales ($mil) 12/2011 = 24222
  2. Sales ($mil) 12/2010 = 21039
  3. Sales ($mil) 12/2009 = 20915
  1. Annual EPS before NRI 12/2007 = 2.66
  2. Annual EPS before NRI 12/2008 = 3.11
  3. Annual EPS before NRI 12/2009 = 2.27
  4. Annual EPS before NRI 12/2010 = 2.69
  5. Annual EPS before NRI 12/2011 = 3.24

Dividend history

  1. Dividend Yield = 3.09
  2. Dividend Yield 5 Year Average =2.8%
  3. Annual Dividend 12/2011 = 1.38
  4. Annual Dividend 12/2010 = 1.34
  5. Forward Yield = 3.09
  6. Dividend 5 year Growth =9%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 06/2011 = 0.47
  3. Change in Payout Ratio = 0.05

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -14.82
  2. Next 3-5 Year Estimate EPS Growth rate = 11.5
  3. EPS Growth Quarterly(1)/Q(-3) = 120.64
  4. ROE 5 Year Average 06/2011 = 23.45
  5. Return on Investment 06/2011 = 15.7
  6. Debt/Total Cap 5 Year Average 06/2011 = 29.52
  7. Current Ratio 06/2011 = 1.40
  8. Current Ratio 5 Year Average = 1.43
  9. Quick Ratio = 1.12
  10. Cash Ratio = 0.42
  11. Interest Coverage = 14.20

Valuation

  1. Book Value Quarterly = 13.87
  2. Price/ Book = 3.69
  3. Price/ Cash Flow = 11.50
  4. Price/ Sales = 1.57
  5. EV/EBITDA 12 Mo = 8.47

Company: ABB Ltd

Levered Free Cash Flow = $1.56B

Basic Key ratios

  1. Relative Strength 52 weeks = 39
  2. Dividend 5-year Growth = 39.46
  3. Cash Flow 5 -year Average = 1.49
  4. Dividend Yield 5-Year Average = 1.15

Growth

  1. Net Income ($mil) 12/2011 = 3168
  2. Net Income ($mil) 12/2010 = 2561
  3. Net Income ($mil) 12/2009 = 2901
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 23.7
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 18.57
  1. EBITDA ($mil) 12/2011 = 5752
  2. EBITDA ($mil) 12/2010 = 4615
  3. EBITDA ($mil) 12/2009 = 4902
  4. Annual Net Income this Yr/ Net Income last Yr = 23.7
  5. Cash Flow ($/share) 12/2011 = 1.88
  6. Cash Flow ($/share) 12/2010 = 1.45
  7. Cash Flow ($/share) 12/2009 = 1.52
  1. Sales ($mil) 12/2011 = 37990
  2. Sales ($mil) 12/2010 = 31589
  3. Sales ($mil) 12/2009 = 31795
  1. Annual EPS before NRI 12/2007 = 1.38
  2. Annual EPS before NRI 12/2008 = 1.37
  3. Annual EPS before NRI 12/2009 = 1.26
  4. Annual EPS before NRI 12/2010 = 1.15
  5. Annual EPS before NRI 12/2011 = 1.46

Dividend history

  1. Dividend Yield = 3.60
  2. Dividend Yield 5 Year Average 12/2011 = 1.15
  3. Dividend Yield 5 Year Average 09/2011 = 1.15
  4. Annual Dividend 12/2011 = 0.63
  5. Forward Yield = 6.91
  6. Dividend 5 year Growth = 45%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.44
  2. Payout Ratio 5 Year Average 12/2011 = 0.18
  3. Payout Ratio 5 Year Average 09/2011 = 0.18
  4. Payout Ratio 5 Year Average 06/2011 = 0.18
  5. Change in Payout Ratio = 0.27

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -23.07
  2. Next 3-5 Year Estimate EPS Growth rate = 11.6
  3. EPS Growth Quarterly(1)/Q(-3) = -137.93
  4. ROE 5 Year Average 12/2011 = 24.68
  5. Return on Investment 06/2011 = 17.27
  6. Debt/Total Cap 5 Year Average 12/2011 = 15.03
  1. Current Ratio 06/2011 = 1.40
  2. Current Ratio 5 Year Average = 1.56
  3. Quick Ratio = 1.09
  4. Cash Ratio = 0.44
  5. Interest Coverage Quarterly = 32.8

Valuation

  1. Book Value Quarterly = 6.89
  2. Price/ Book = 2.81
  3. Price/ Cash Flow = 10.30
  4. Price/ Sales = 1.17
  5. EV/EBITDA 12 Mo = 7.3

Other interesting companies to consider

Company: Southern Copper (SCCO)

Basic Key ratios

  1. Percentage Held by Insiders = 0.05
  2. Relative Strength 52 weeks = 46
  3. Dividend 5-year Growth = 0.04
  4. Cash Flow 5 -year Average = 2.22
  5. Dividend Yield 5-Year Average = 5.81

Growth

  1. Net Income ($mil) 12/2011 = 2336
  2. Net Income ($mil) 12/2010 = 1554
  3. Net Income ($mil) 12/2009 = 929
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 50.35
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 9.1
  1. EBITDA ($mil) 12/2011 = 3923
  2. EBITDA ($mil) 12/2010 = 2873
  3. EBITDA ($mil) 12/2009 = 1776
  4. Annual Net Income this Yr/ Net Income last Yr = 50.34
  5. Cash Flow ($/share) 12/2011 = 3.09
  6. Cash Flow ($/share) 12/2010 = 2.14
  7. Cash Flow ($/share) 12/2009 = 1.4
  1. Sales ($mil) 12/2011 = 3193
  2. Sales ($mil) 12/2010 = 5150
  3. Sales ($mil) 12/2009 = 3734
  1. Annual EPS before NRI 12/2007 = 2.48
  2. Annual EPS before NRI 12/2008 = 1.58
  3. Annual EPS before NRI 12/2009 = 1.08
  4. Annual EPS before NRI 12/2010 = 1.81
  5. Annual EPS before NRI 12/2011 = 2.76

Dividend history

  1. Dividend Yield = 2.42
  2. Dividend Yield 5 Year Average 12/2011 = 5.81
  3. Dividend Yield 5 Year Average 09/2011 = 5.81
  4. Annual Dividend 12/2011 = 2.43
  5. Annual Dividend 12/2010 = 2.09
  6. Forward Yield = 2.42
  7. Dividend 5 year Growth 12/2011 = 0.04

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.01
  2. Payout Ratio 5 Year Average 12/2011 = 0.87
  3. Payout Ratio 5 Year Average 09/2011 = 0.87
  4. Payout Ratio 5 Year Average 06/2011 = 0.87
  5. Change in Payout Ratio = 0.14

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -16.61
  2. Next 3-5 Year Estimate EPS Growth rate = 17.58
  3. EPS Growth Quarterly(1)/Q(-3) = -115.51
  4. ROE 5 Year Average 12/2011 = 42.76
  5. ROE 5 Year Average 09/2011 = 42.76
  6. ROE 5 Year Average 06/2011 = 43.71
  7. Return on Investment 06/2011 = 34.47
  8. Debt/Total Cap 5 Year Average 12/2011 = 31.24
  9. Debt/Total Cap 5 Year Average 09/2011 = 31.24
  10. Debt/Total Cap 5 Year Average 06/2011 = 31.14
  1. Current Ratio 06/2011 = 3.12
  2. Current Ratio 5 Year Average = 3.5
  3. Quick Ratio = 2.47
  4. Cash Ratio = 1.58
  5. Interest Coverage Quarterly = 19.38

Valuation

  1. Book Value Quarterly = 4.75
  2. Price/ Book = 6.61
  3. Price/ Cash Flow = 10.17
  4. Price/ Sales = 3.92
  5. EV/EBITDA 12 Mo = 7.15

Notes

The dividend is much higher when you factor in the portion of the dividend that was paid out in shares. This portion is not reflected in the current yield.

Company: W.W. Grainger Inc (GWW)

Levered Free Cash Flow = 438M

Basic Key ratios

  1. Percentage Held by Insiders = 8.05
  2. Number of Institutional Sellers 12 Weeks = 2

Growth

  1. Net Income ($mil) 12/2011 = 658
  2. Net Income ($mil) 12/2010 = 511
  3. Net Income ($mil) 12/2009 = 430
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 30.13
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 12.31
  1. EBITDA ($mil) 12/2011 = 1210
  2. EBITDA ($mil) 12/2010 = 1012
  3. EBITDA ($mil) 12/2009 = 864
  4. Annual Net Income this Yr/ Net Income last Yr = 28.89
  1. Cash Flow ($/share) 12/2011 = 11.55
  2. Cash Flow ($/share) 12/2010 = 9.44
  3. Cash Flow ($/share) 12/2009 = 7.4
  1. Sales ($mil) 12/2011 = 8078
  2. Sales ($mil) 12/2010 = 7182
  3. Sales ($mil) 12/2009 = 6222
  1. Annual EPS before NRI 12/2007 = 4.94
  2. Annual EPS before NRI 12/2008 = 6.16
  3. Annual EPS before NRI 12/2009 = 5.38
  4. Annual EPS before NRI 12/2010 = 6.81
  5. Annual EPS before NRI 12/2011 = 9.04

Dividend history

  1. Dividend Yield = 1.20
  2. Dividend Yield 5 Year Average = 1.7%
  3. Annual Dividend 12/2011 = 2.52
  4. Annual Dividend 12/2010 = 2.08
  5. Forward Yield = 1.22
  6. Dividend 5 year Growth = 17%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.29
  2. Payout Ratio 5 Year Average 06/2011 = 0.3
  3. Change in Payout Ratio = -0.01

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 46.11
  2. Next 3-5 Year Estimate EPS Growth rate = 13.4
  3. EPS Growth Quarterly(1)/Q(-3) = -118.99
  4. ROE 5 Year Average 06/2011 = 21.34
  5. Return on Investment 06/2011 = 23.27
  6. Debt/Total Cap 5 Year Average 06/2011 = 11.31
  1. Current Ratio 06/2011 = 1.90
  2. Current Ratio 5 Year Average = 2.66
  3. Quick Ratio = 0.9
  4. Cash Ratio = 0.39
  5. Interest Coverage Quarterly = 115.8

Company: Intel Corp (INTC)

Basic Key ratios

  1. Percentage Held by Insiders = 0.26
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 12942
  2. Net Income ($mil) 12/2010 = 11464
  3. Net Income ($mil) 12/2009 = 4369
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 10.88
  1. EBITDA ($mil) 12/2011 = 23845
  2. EBITDA ($mil) 12/2010 = 20683
  3. EBITDA ($mil) 12/2009 = 10756
  4. Net Income Reported Quarterlytr ($mil) = 3360
  5. Annual Net Income this Yr/ Net Income last Yr = 12.89
  6. Cash Flow ($/share) 12/2011 = 3.78
  7. Cash Flow ($/share) 12/2010 = 2.92
  8. Cash Flow ($/share) 12/2009 = 1.97
  1. Sales ($mil) 12/2011 = 53999
  2. Sales ($mil) 12/2010 = 43623
  3. Sales ($mil) 12/2009 = 35127
  1. Annual EPS before NRI 12/2007 = 1.15
  2. Annual EPS before NRI 12/2008 = 1
  3. Annual EPS before NRI 12/2009 = 1.03
  4. Annual EPS before NRI 12/2010 = 2.05
  5. Annual EPS before NRI 12/2011 = 2.44

Dividend history

  1. Dividend Yield = 2.96
  2. Dividend Yield 5 Year Average 12/2011 = 2.96
  3. Dividend Yield 5 Year Average 09/2011 = 2.96
  4. Annual Dividend 12/2011 = 0.78
  5. Annual Dividend 12/2010 = 0.63
  6. Forward Yield = 2.99
  7. Dividend 5 year Growth 12/2011 = 13.49

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.34
  2. Payout Ratio 5 Year Average 12/2011 = 0.47
  3. Payout Ratio 5 Year Average 09/2011 = 0.47
  4. Payout Ratio 5 Year Average 06/2011 = 0.47
  5. Change in Payout Ratio = -0.12

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 38.58
  2. Next 3-5 Year Estimate EPS Growth rate = 9.9
  3. EPS Growth Quarterly(1)/Q(-3) = -114.29
  4. ROE 5 Year Average 12/2011 = 19.02
  5. ROE 5 Year Average 09/2011 = 19.02
  6. ROE 5 Year Average 06/2011 = 18.75
  7. Return on Investment 06/2011 = 25.54
  8. Debt/Total Cap 5 Year Average 12/2011 = 5.15
  9. Debt/Total Cap 5 Year Average 09/2011 = 5.15
  10. Debt/Total Cap 5 Year Average 06/2011 = 5.12
  1. Current Ratio 06/2011 = 2.15
  2. Current Ratio 5 Year Average = 2.65
  3. Quick Ratio = 1.81
  4. Cash Ratio = 1.51
  5. Interest Coverage Quarterly = N/A

Conclusion

EMR leads in the following areas:

  • It's a dividend king: It has consecutively increased its dividends for 55 years and has been paying dividends since 1947. ABB is a novice in comparison; it has only been paying dividends since 2003.
  • A stronger 3 year total returns of 64% Vs 39% for ABB.
  • Profit and operating margins of 9% and 16% Vs 8% and 13% for ABB.
  • Levered free cash flow of $2.64 billion Vs $1.5 billion for ABB.
  • Free cash flow yield of 6.73% Vs 6.01% for ABB.
  • Quick ratio of 1.12 Vs 1.09 for ABB.

ABB leads in the following areas:

  • Quarterly earnings growth and revenue rates of 18% and 15% Vs -22% and - 4% respectively for EMR.
  • 5 year dividend growth rate of 39% Vs 9% for EMR.
  • 5 year sales growth rate of 7% Vs 1.6% for EMR.
  • Long term debt to equity ratio of 0.2 Vs 0.4 for EMR.
  • Interest coverage of 32.8 Vs 14 for EMR.
  • Dividend Yield of 3.6% Vs 3.10% for EMR.
  • Payout ratio of 44% Vs 51% for EMR.
  • 5 year average payout ratio of 18% Vs 47% for EMR.
  • $100K invested for 10 years would have grown to $798K VS $239K for EMR.

These are both great companies. Each company has some advantages over the other and ideally investors would be better off having a stake in both. However, if push came to shove we would have to err on the side of ABB as it has the edge on several important fronts. Higher yield, higher dividend growth rate, lower payout ratio, stronger five-year sales growth, an interest coverage ratio that is double that of EMR and a stronger 10 year rate of return.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: Standoff: Emerson Electric Vs. ABB ... Which One Prevails?

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com. Consensus estimate analysis sourced from reuters.com.