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What Factors Could Drive Emerson Electric Stock in 2017?



Series overview

Emerson Electric (EMR) is set to announce its 1Q17 earnings results on February 7, 2017, before market hours. In this series, we’ll look at analyst expectations for EMR’s 1Q17 earnings as well as the factors that led analysts to arrive at those expectations. We’ll also discuss the company’s earnings guidance for 2017.

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Emerson Electric’s 2016 stock performance

Investors who took positions in Emerson Electric at the beginning of 2016 would have made 18% on their investments by the end of the year. During the same period, the S&P 500 rose about 11%. Selection bias is inherent in this calculation as investors who had taken positions in Emerson Electric five years ago would have hardly received any returns over the years. Currently, Emerson Electric is trading at a trailing PE (price-to-earnings) multiple of 23.9x, which is more than its five-year average multiple of 19.1x.

Returns for some of Emerson Electric’s peers are better than the market (SPY) as well. Rockwell Automation (ROK) yielded about 32% in 2016. In the same period, Honeywell International (HON) managed to yield capital gains of 14%. However, AMETEK (AME) lost nearly 8% in 2016.

Currently, HON is trading at a trailing PE multiple of 19.2x, which is more than its five-year average of 18.9x. In contrast, Rockwell Automation has a PE multiple of 26.5x as compared to its average five-year multiple of 18.2x.

Driving factors in 2017

According to company filings, EMR expects its 2017 sales and revenues to be marginally lower than that of 2016 levels. However, synergies from its strategic acquisitions such as Pentair Valves & Controls, Locus Traxx, and PakSense could aid Emerson Electric’s top line growth in 2017. In 2016, Emerson Electric derived more than 50% of its revenues from the United Sates and Canada. An uptick in US industrial production growth on the backdrop of President Trump’s infrastructure spending plan and sustained recovery in crude oil prices could have a positive impact on the company’s bottom line in 2017.

Now let’s discuss how analysts are rating Emerson Electric.


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