AABP Award 728x90

Emerson Electric could generate good returns


.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Please give me your opinion of Emerson Electric Co. My brother went to work there several years ago. Now that the stock is trading in the low-$30 range, he tells me I should buy 200 shares for my Independent Retirement Account (IRA). He is extremely effusive in his praise of this company and has told me some things that I can’t discuss. I trust my brother, but sometimes he can be too excited about things.

K.R., Kankakee, Ill.

Dear K.R.:

I think Emerson Electric Co. is as classy a company as General Electric Co., but without the financial problems. Emerson Electric Co. (EMR-$33.16) designs, manufactures and sells a huge range of electronic products and systems for the commercial, industrial and consumer markets. Its $1.32 dividend, which has been raised for 53 consecutive years, yields a swell 4 percent.

EMR, a St. Louis company, was founded in 1890 to manufacture electric motors and fans. Founded by two Scotland-born brothers and a Union Army officer, the company quickly developed a reputation for quality and produced revenues of $60,000 during its second year of operation. Today, EMR is a global manufacturing company, with 140,000 employees and 265 plants worldwide that in 2008 produced $25 billion in revenues.

From making electric motors and fans more than 100 years ago, EMR now produces systems, products and technologies for the agricultural, appliance, construction, chemical, computer, food service, forest product, health care, life sciences, medical equipment, mining, military and aerospace, oil and gas, petrochemical, pharmaceutical, plumbing, refining, telecommunications, textile, transportation, and water and waste industries. In 2008, 55 percent of EMR’s revenues derived from international sales.

However, the company is feeling the effects of a weak national and global economy. Management believes 2009 revenues will fall to $23 billion and that per-share earnings will decline from a record $3.11 last year to $2.85 for 2009. In prior downturns, Emerson’s creative and innovative management used the lulls to invest in new technologies and retooling to ensure solid future growth and higher margins. EMR might have one of the most effective management teams among public companies and enjoys a vendor relationship with customers that is the envy of the industry.

The company has returned an average 80 percent of free cash flow to stockholders in the form of stock buybacks and cash dividends. Some on Wall Street would prefer EMR plow more of that money back into the company to ensure that future growth remains vibrant. Still, the company has a solid 9.4 percent net profit margin, a healthy 24 percent return on stockholder equity, expected 2009 per-share earnings of $2.80, expected 2009 cash flow of $3.80 per share and a possible dividend increase.

Eleven analysts follow EMR. Five of them rate EMR as a “strong buy,” and the other six give it a “hold” rating. I’m inclined to agree with the five bulls. They believe EMR could, in the coming 12 months, rise to the $42 to $45 level.

A 45 percent to 50 percent return (not including the dividend) is sweet, but I prefer a three- to four-year horizon. In that time, I think EMR could return to the $57 to $59 level where it traded not long ago.

If you have the patience to be a long-term investor, I think a 200-share position in EMR will fit nicely into your IRA.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service

dentons brweb 090123 300x250