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EMERSON ELECTRIC CO.

(EMR)
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Earnings could halt stock selloff in U.S. conglomerates

10/15/2014 | 01:46pm EDT

(Reuters) - Investors who have endured a four-month selloff in shares of large U.S. manufacturers will be looking for solid revenue growth and order trends in third-quarter earnings reports starting on Friday to help allay fears that a soft global economy will derail the outlook for diverse industrial names.

Concerns over weak economic growth in Europe and stagnation in emerging markets have dented shares of these large industrial companies, which depend on sales outside of the United States, according to portfolio managers and analysts who follow the stocks.

"As far as the diversified industrials, the big bugaboo the last month is if you have a higher concentration of sales in China and Europe," said Charlie Smith, chief investment officer at Fort Pitt Capital.

Stocks of diverse manufacturers have underperformed the broader U.S. market this year, to the point that Morgan Stanley analyst Nigel Coe said on Monday they were in "official correction territory." The stronger dollar reduces the value of foreign sales, while worry over slowdowns in some industrial markets such as energy also could be dampening expectations.

"It’s time for companies to prove they’re worth paying up for, and hopefully we’ll see that in demand," said John Heslin, who follows industrial companies as vice president at Tradition Capital Management.

Third-quarter reports for large diverse manufacturers kick off on Friday with General Electric (>> General Electric Company) and Honeywell International (>> Honeywell International Inc.). At an investor meeting last week, GE Chief Executive Officer Jeff Immelt, whose company is often viewed as an economic bellwether, said GE was seeing healthy orders despite global volatility.

"I still think we’re kind of in the same world recovering from the financial crisis that’s got slow growth and volatility," Immelt said.

Barclays analyst Scott Davis forecast 4 percent quarterly core sales growth for diverse manufacturers, saying in a research note that 3 percent "would be a concern."

Although companies such as GE and United Technologies (>> United Technologies Corporation) are not due to forecast 2015 results until later in the year, investors certainly will look for clues.

Sales and earnings were likely to be "notably lower" next year compared to 2014, William Blair analyst Nick Heymann warned in a research note this week. He expects organic revenue growth of 1 percent to 3 percent on average in 2015, versus 3 percent to 5 percent this year.

"The question a lot of people have is where is '15 going to be," said Scott Lawson, vice president at Westwood Holdings Group, who follows industrial companies. "You tend to see industrials rally in November and December as investors look toward the growth for next year."

While the stocks at the start of the year may have looked expensive after a big run in 2013, "the valuations have pulled back, so we’ve found a few opportunities lately," said Kevin Toney, senior portfolio manager at American Century Investments.

Toney cautioned: "We're still nibbling around the edges, as opposed to finding lots of juicy opportunities in this group."

(Reporting by Lewis Krauskopf; Editing by Nick Zieminski)

By Lewis Krauskopf


ę Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
3M COMPANY 1.78% 201.03 Delayed Quote.15.01%
EATON CORPORATION PLC 4.04% 162.81 Delayed Quote.30.26%
EMERSON ELECTRIC CO. 1.44% 101.16 Delayed Quote.24.08%
GENERAL ELECTRIC COMPANY 2.45% 103.06 Delayed Quote.19.28%
HONEYWELL INTERNATIONAL INC. 0.10% 232.65 Delayed Quote.9.38%
LETS HOLDINGS GROUP CO., LTD. 1.59% 6.39 End-of-day quote.-17.87%
MORGAN STANLEY 0.38% 96.6 Delayed Quote.40.42%
RAYTHEON TECHNOLOGIES CORPORATION 1.57% 87.97 Delayed Quote.23.02%
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Financials (USD)
Sales 2021 18 139 M - -
Net income 2021 2 232 M - -
Net Debt 2021 4 962 M - -
P/E ratio 2021 27,4x
Yield 2021 1,97%
Capitalization 60 666 M 60 666 M -
EV / Sales 2021 3,62x
EV / Sales 2022 3,40x
Nbr of Employees 83 500
Free-Float 62,5%
Chart EMERSON ELECTRIC CO.
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Emerson Electric Co. Technical Analysis Chart | EMR | US2910111044 | MarketScreener
Technical analysis trends EMERSON ELECTRIC CO.
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Income Statement Evolution
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Mean consensus OUTPERFORM
Number of Analysts 25
Last Close Price 101,16 $
Average target price 104,57 $
Spread / Average Target 3,37%
EPS Revisions
Managers and Directors
Surendralal L Karsanbhai President, Chief Executive Officer & Director
Frank J. Dellaquila Chief Financial Officer & Senior Executive VP
James S. Turley Chairman
Jake Fritz Chief Information Officer & Vice President
Ram R. Krishnan Chief Operating Officer & Executive Vice President
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