I like companies that have been producing sales and profits for a very long time and Emerson Electric Co has been doing just that for 124 years. I also like Dividend Aristocrats and this company is not only on that list but it has been increasing its dividend for 56 years so this puts it on the list of Dividend Kings too.
Despite its recent sluggish growth, this company could soon be getting back on track for significant increases in 2014 and 2015.
- Analyst's estimates have revenues and earnings improving in 2014 before significantly increasing in 2015.
- The stock is consolidating after a nice run up in 2013 and any pullback could be a nice set up for an extended rise into the low to mid 70s.
- Any investment decision today has to be based on the investing individual's confidence in the analyst's estimates going forward.
Emerson Electric Co. (EMR), a diversified technology company, designs and supplies products and technology, and delivers engineering services and solutions to the industrial, commercial, and consumer markets worldwide. Its Process Management segment offers customers products and technology, and engineering and project management services for precision measurement, control, monitoring, and asset optimization of oil and gas reservoirs and power generating plants, as well as for plants that process or treat food and beverages, pulp and paper, pharmaceuticals, municipal water supplies, and oil, natural gas, and petrochemicals. The company’s Industrial Automation segment provides integrated manufacturing solutions for products, including motors, drives, power generating alternators, power transmission solutions, fluid controls, and materials joining equipment. Its Network Power segment designs, manufactures, installs, and maintains products that offer electric power conditioning, power reliability, environmental control for telecommunications networks, data centers, and other critical applications, as well as comprehensive data center infrastructure management solutions. The company’s Climate Technologies segment provides products and services for various areas of the climate control industry, such as residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and marine controls. Its Commercial and Residential Solutions segment offers a range of professional and do-it-yourself tools, fixed and mobile storage products, and appliances and components. The company was formerly known as The Emerson Electric Manufacturing Company and changed its name to Emerson Electric Co. in 2000. Emerson Electric Co. was founded in 1890 and is headquartered in St. Louis, Missouri. (Daily Chart) (Weekly Chart)
1 June 2014
1yr Target $73.04
1yr Cap Gain 9.46%
1yr Tot Return 12.04%
3yr DGR 7.05%
5yr DGR 6.17%
Payout Ratio 60.14%
EPS (ttm) $2.81
EPS next yr $4.20
Emerson was established in 1890 in St. Louis, Missouri as Emerson Electric Manufacturing Co. by Civil War Union veteran John Wesley Emerson to manufacture electric motors using a patent owned by the Scottish-born brothers Charles and Alexander Meston. In 1892, it became the first company to sell electric fans in the United States. It quickly expanded its product line to include electric sewing machines, electric dental drills, and power tools.
Dividends, however, continued at a more stable and steady rate increase during each of these 10 years by management allowing the payout ratio to vary between approximately 40% and 60%. Assuming earnings increase as analysts estimate and the dividends continue to grow at approximately 7% per year, the payout ratio will fall back to the lower end of this range once again thus insuring that dividends will continue well into the future.
Revenue growth rates have traditionally been in the area of 5% but it can be seen that this rate was significantly affected by the recent recession. Looking at the estimates above it appears that revenue growth rates may once again be moving back to this level as the company moves forward into 2014 and 2015. Earnings growth rates have obviously been affected more severely by the recession than revenues but once again, based on analysts estimates these are likely to be returning to the earlier growth rate of 7% as the company approaches 2015.
Dividend growth rates have remained stedy throughout this period due to management's decision to increase dividends and allow the payout ratio to expand. As earnings increase going forward it's expected that the payout ratio will decrease as dividends continue to increase.
None of this is surprising to the technical analysts when looking at the weekly chart. The stock made a nice movement up in 2013 of about 20% so it's natural that it may have gotten ahead of itself. A period of consolidation is well deserved after that kind of move. Its P/E ratio has also risen to around 24 and at that level there just isn't going to be a lot of buyers coming in to buy this stock.
If the technicals are the best source of determining the best buying price, the momentum indicators are telling me that there just doesn't seem to be a hurry to buy this stock at this price. A small pullback would greatly enhance all the momentum indicators.
Since the lower Bollinger Band sits at $65.52 I will look to put a buy in for this stock at this lower level. This is 11.47% below the target price and still allows for a ten percent one year capital gain if the stock only rises to a price of $72.00. Adding in a dividend that yields 2.58% increases the total return to 12.58% on the reduced target.
A price of $65.52 would also reflect a P/E ratio of 17.47 based on 2014 estimated earnings and just 15.60 based on 2015 estimates. In addition, based on the dividend estimate of $1.90 in 2015, the yield on cost will be 3.35%.
These are very desirable numbers.