Analyst Note| Joshua Aguilar |
Wide-moat rated Emerson Electric slightly outperformed our expectations in its fiscal fourth quarter. On the strength of this outperformance, particularly on its top line, we raise our fair value estimate by $2. Combined with an extra $2 due to time value of money, we raise our fair value estimate to $74 per share from $70 per share. We now expect $17.1 billion of sales for full-year 2021, GAAP operating margins of 15.5%, yet similar adjusted EPS of $3.48 and $2.5 billion of free cash flow, and a ROIC of 16.8% (which represents a 60-basis-point improvement from 2020). Nevertheless, we expect a more detailed review after Emerson issues its 10-K, which results in further adjustment to the upside with an additional year in our explicit forecast when we roll our model. Given what we see as a conservative forecast, our projections sit at the top end of the guidance range; we think it sets up management for a highly probable beat and raise if economic activity recovers even further ahead of expectations, as has been the case thus far.