Company Reports

Wide-moat-rated Emerson posted solid fiscal first-quarter results, as its revenue of $4.1 billion and adjusted EPS of $1.22 both easily beat the FactSet consensus estimates of $3.9 billion and $1.04, respectively. We’ve raised our fair value estimate to $113 from $109, which reflects our slightly more optimistic near-term revenue growth and incremental margin projections as well as time value of money.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds, we believe the firm is poised for several years of positive organic growth. Its total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, established firms' share remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds, we believe the firm is poised for several years of positive organic growth. Its total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, established firms' share remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

Nothing materially alters our long-term thesis for wide-moat-rated Emerson. After fully folding in National Instruments’ financials, we lift our fair value estimate to $109 from $105. While long-term contributions were a benefit, National Instruments’, or NI's, implied year one contributions (expected sales down midsingle digits) disappointed our initial expectations. Furthermore, Emerson’s fiscal fourth-quarter revenue also somewhat disappointed us. NI’s weak near-term expectations, however, were fully offset by a better organic sales guide from core Emerson, our model’s additional year of revenue, and the time value of money.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds, we believe Emerson is poised for several years of positive organic growth. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

Wide-moat-rated Emerson Electric completed its acquisition of test and measurement equipment and services provider NI on Oct. 11. We don’t expect to materially change our $105 fair value estimate, since our model currently accounts for the valuation impact from the transaction. We will update our financial projections once Emerson management issues guidance on the NI transaction's impact.

Wide-moat-rated Emerson Electric had a strong fiscal third quarter. That said, nothing materially alters our long-term point of view. We lift our fair value estimate to $105 from $103, but the raise is due to time value of money. Our forecast remains essentially unchanged, though there were some puts and takes in our full-year 2023 figures that mostly canceled one another out.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

While wide-moat-rated Emerson Electric’s fiscal second-quarter results were very solid and easily surpassed our expectations for the quarter, we maintain our $103 fair value estimate. Consolidated revenue of $3.76 billion beat our expectations by about 5%, while adjusted EPS of $1.09 surpassed what we penciled in by over 11%. While we’re pleased with core Emerson’s results, AspenTech underperformed both its initial guide and what our covering analyst was modeling. This gives us pause because one of our general concerns with Emerson is its spotty history of integration and overpaying for assets, despite the strong strategic rationales for its past deals.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

After reviewing wide-moat rated Emerson’s presentation on the NI acquisition, we reduce our fair value estimate to $103 from $105.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

We raise our fair value estimate for narrow-moat NI to $60 per share from $48 to reflect an agreement to be acquired by wide-moat Emerson. We assign a 100% probability to the deal closing in our model, as we foresee no regulatory pushback.

Wide-moat-rated Emerson turned in a softer-than-expected fiscal first quarter, but we’re not changing our $105 fair value estimate. This quarter was the first time we saw new financials following Emerson’s resegmentation. As we reassessed following the additional disclosure, we model at the low end of the organic sales and adjusted EPS guide, which we think looks a bit stretched at this juncture. That said, management maintained the guide. This factor, the robust backlog of $6.6 billion, and the fact that we’re only one quarter through the year lead us to give the company the benefit of the doubt, for now.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

We raise our fair value estimate for narrow-moat National Instruments to $48 per share from $43, as wide-moat Emerson Electric has emerged as a suitor for to buy NI with a cash offer of $53 per share. We assign a 50% probability of a deal going through at $53 per share, with 50% probability that a deal falls through with our $43 standalone fair value estimate remaining intact. This offer comes after NI’s announcement last week that it is conducting a strategic review, likely in order to attract another suitor and/or an even higher offer price.

On Jan. 17, wide-moat-rated Emerson announced it has made an all-cash proposal to acquire narrow-moat National Instruments, or NI, for $53 per share. The proposal represents a 38% premium to NI’s 30-day volume-weighted average share price or a 23% premium to our NI fair value estimate. Emerson lost nearly 7% in market capitalization. We think the market’s reaction implies that the deal will close (NI’s stock price rose to $53 during the trading day), that Emerson will unsuccessfully extract little to no synergies, and a lower NI valuation on a standalone basis.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds in fiscal 2020 given low levels of gross fixed investment amid geopolitical uncertainty and COVID-19-related disruptions, we believe Emerson is poised for several years of positive organic growth after a slow recovery in early 2021. Emerson's total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, share from established firms remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

We don’t expect to materially change our $113 fair value estimate for Emerson following its fiscal fourth-quarter and full-year results, though we are still fully digesting the news of Emerson’s climate technologies sale to Blackstone. Fourth-quarter revenue rose over 8% year on year to $5.36 billion, or 12% on an organic basis, while the firm exceeded our sales expectations by about $100 million. Adjusted EBITA rose 260 basis points year on year to 23.6%, while adjusted EPS rose 16% to $1.53. GAAP EBIT margins rose 30 basis points to 17.9%, even as we were expecting a 40-basis-point decline. While top-line guidance came in a bit below our initial expectations, the impact was minimal relative to our margin expectations.