Emerson Electric Co. EMR is poised to gain from healthy demand across most of its end markets. Solid demand in the process and hybrid industries is boosting underlying sales. The company anticipates sales in the process and hybrid industry to grow moderately in fiscal 2025 (ending September 2025), driven by strength in the energy, LNG and power end markets. Robust demand from sustainability and digital transformation initiatives will also contribute to steady progress.

Also, the company is benefiting from the strong performance of the Intelligent Devices and Software and Control segments. Within the Intelligent Devices segment, it is seeing strength in the Final Control business, driven by solid momentum in the energy and power end markets. 

Robust growth in all geographies and strong backlog conversion levels are aiding the Measurement & Analytical business. Within the Software and Control segment, strength in the power, process and hybrid end markets is supporting the Control Systems & Software business. Strength in the aerospace and defense end markets, driven by increasing government spending, is supporting the Test & Measurement business’ growth.

EMR’s expansion initiative is expected to drive growth. In November 2024, it proposed to acquire the remaining shares of AspenTech for $240 per share. This follows Emerson's 55% majority stake in AspenTech, acquired in 2022, and will increase its ownership to 100%, making AspenTech a wholly owned subsidiary. 

In the fourth quarter of fiscal 2023, the company completed the acquisitions of Afag and Flexim. The buyout of Afag boosted Emerson’s capabilities in factory automation, helping it expand into lucrative end markets, battery manufacturing, automotive, packaging, medical, life sciences and electronics. The acquisition of Flexim added to its existing flow measurement positions in coriolis, differential pressure, magmeter and vortex flow measurement and expanded its automation portfolio and measurement capabilities.

The company believes in rewarding its shareholders handsomely through dividend payments and share buybacks. In 2024 (ended September 2024), it paid out dividends of $1.2 billion and repurchased common stocks worth $435 million. In November 2024, the company hiked its dividend by 0.5%. Emerson plans to repurchase shares worth $2 billion and pay out dividends of $1.2 billion in fiscal 2025 (ending September 2025). For fiscal 2025, it expects free cash flow to be in the band of $3.2–$3.3 billion.

EMR currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 30.9% compared with the industry’s 16.1% growth.

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Headwinds Plaguing EMR

Emerson has been dealing with the adverse impacts of the high cost of sales and operating expenses. Increasing material and freight costs are pushing up the cost of sales, which surged 8.2% in the fourth quarter of fiscal 2024 (ended September 2024). The impact of these expenditures is evident in the rise of the cost of sales as a percentage of total revenues, which climbed 210 basis points to reach 50.8%. Selling, general and administrative expenses increased 18% to $1.3 billion due to increased acquisition-related and stock compensation expenses.

The company’s operations are spread across the world, the majority of which are outside the United States. Therefore, it is exposed to global economic and political risks as well as unfavorable movement in foreign currencies.

Stocks to Consider

Some better-ranked companies are discussed below.

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GHM delivered a trailing four-quarter average earnings surprise of 101.9%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 earnings has increased 8.4%.

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In the past 60 days, the consensus estimate for POWL’s fiscal 2025 earnings has increased 10.1%.

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The Zacks Consensus Estimate for KAI’s 2024 earnings has increased remained unchanged in the past 60 days.

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Emerson Electric Co. (EMR) : Free Stock Analysis Report

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