Emerson Electric Co. Moves Higher With Strong Institutional Support 

Emerson Electric Co. Raises Guidance On Strong Demand 

Emerson Electric Co. (NYSE: EMR) is yet another example of a trend we’ve been seeing over the past few months. While institutional activity has been vigorous on both the bull and bear side of the equation the net of buying has been bullish. In the case of Emerson Electric Co., that activity is worth a net $0.69 billion in favor of the bulls or about 1.25% of the market cap with shares trading near $95. That’s not a large portion of the company but is a significant amount given the institutions now hold about 72.5% of the company and the holdings are growing. The only reason for an institutional holder to up its holdings in any stock is if they think it is moving higher and this stock is poised to move higher. 

Emerson Electric Co. Beats And Raises Guidance 

Emerson Electric Co. had a great quarter and that is really no surprise. The company makes a wide range of electric devices for business, residential, and industrial uses and is well-positioned in today’s economy. The company reported $4.5 billion in net revenue for a gain of 8% over last year and last year's revenue was flat versus the pre-pandemic period. The revenue also beat the consensus by 45 basis points and could have been stronger if not for global supply chain hurdles and shipping disruptions. On a segment basis, China led with growth of 12% followed by an 11% gain in the Americas, a 6% increase in AMEA, and a 3% increase in the EU. 

Moving down the report, the company produced wider margins versus last year with GAAP margin up 1280 basis points and adjusted margin up a smaller but no less important 140 basis points. This led to strong results on the bottom line as well with the GAAP EPS of $1.50 up more than 100% from last year. When adjusting for factors largely unrelated to the underlying business, the earnings come out to $1.05 or up 13% YOY and $0.04 better than expected. 

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The guidance is also positive but there are some caveats that we think might weigh on share prices over time. The company was able to improve its revenue guidance but only by 100 basis points despite a 17% increase in 3-month trailing order volume and the EPS outlook is more tepid. The company is expecting $4.90 to $5.05 in adjusted earnings compared to the $5.33 consensus estimate due to restructuring costs and other efforts to improve operations and growth. 

Institutions Seek Shelter In Emerson Electric Co.’s Dividend 

Emerson Electric Co. is not a high-yielding or an aggressively growing dividend but it is a very attractive payment and we view it as safe. The stock is yielding about 2.2% which is almost double the broad-market average and there is an outlook for growth. The company has been increasing the payment for 26 years and qualifies as an Aristocrat and is still paying out less than half of its earnings as dividends. This, along with the near-fortress balance sheet, leaves the company in a good position to pursue growth and continue raising the dividend with only one caution. We do not expect to see robust increases, more like low single-digits as has been the trend. 

The Technical Outlook: Range-Bound Emerson Moves Up From Support

Emerson Electric Co. entered a trading range last year when it broke the uptrend and that range is still dominating the price action. That said, price action is moving up strongly from the bottom of the range with indicators that suggest upward movement could continue. The first target for resistance is just above the current price action near $98 and the middle of the range. A move above that level would be bullish but face resistance at $100 and then again at the top of the range. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
Emerson Electric (EMR)	$136.60	-2.1%	1.63%	33.81	Moderate Buy	$147.67