- Emerson (EMR +0.7%) is higher after RBC Capital upgrades shares to Outperform from Sector Perform with a $77 price target, raised from $65, as CEO David Farr prepares to retire and activist investors could be circling the company.
- "We continue to believe that a two-way breakup separating Automation Solutions (66% of sales) and Commercial & Residential Solutions (34%) could transpire before Farr's departure rather than after," RBC analyst Deane Dray writes.
- EMR's relative price-to-earnings ratio is at the bottom of its historical range, "and we have a bias to add some quality cyclical exposure paired with our ongoing 75% defensive sector weighting," Dray says.
- Dray prefers more defensive stocks such as Xylem (XYL -0.4%), whose water valves and pumps sold to water utilities are less economically sensitive than EMR's energy business, but he still believes the potential for significant change at EMR - catalyzed by either an activist or outgoing CEO Farr - is a good enough reason to buy the stock.