Emerson Electric (EMR) Stock | Long Term Analysis | Overvalued or Undervalued |

Transcript (auto-generated)

All right hello and welcome everybody to other stock now sphere where today we’ll be talking about emerson electric corporation ticker symbol emr now this company is traded on the new york stock exchange and in this video i want to talk about how this company generates its income want to determine whether the stock is overvalued undervalued or fair value and i also want to give a full long-term analysis on the business we will discuss intrinsic value book value priced earnings the income stock buybacks and all sorts of important tankless when projecting the growth of a company and determining the true value of the stock anyway if you like this video please do like and subscribe as it does about our channel and let’s get this content to more people so that more people understand emr works and also all the other stocks that we talk about work as well on our channel anyway thank you so much for watching and without further ado let’s get started

so how does emr work well to keep things simple emerson is a control systems manufacturer the goal of this company is to develop technology to complete a certain task and then monitor a system using the technology for a long period of time the company is not small and has a market cap of 54 billion dollars and it was founded in 1890 and emerson has been a prominent figure in the control market for many years

emerson is diversified across many sectors within the control industry in addition to being diversified across many regions throughout the world emerson is a multinational corporation that owns delta v and copeland both well-known subsidiaries in this field delta v offers distributed control solutions for systems such as large power plants that can power our houses today this is a market that is very difficult to join and emerson controls these systems once they are built offering long-term income and growth as they can essentially grow their income by forcing a higher management fee for states or regions using the electricity another key subsidiary is copeland which specializes in the field of refrigeration copeland manufactures very important compressors for refrigeration systems and they are by far the largest in this space

lastly the company’s management has been active in purchasing competitors in the control space recently they acquired media technic offering technology for wind power in addition to textron’s tools and testing business for 811 million dollars they have also participated in multiple mergers of subsidiaries for example aspen technology also known as aspen tech merged software units with emerson to combine companies that were once rivals in the industrial software space

now let’s analyze the industry this company operates in a 214 billion dollar automation market that is very competitive with major players such as snyder electric controlling a significant portion of the market alongside emerson electric i want to note that the emerson electric is also known in this industry for the oil gas chemical and refining facilities these facilities can provide electricity for millions and the likelihood of the system changing management is very slim as in order to switch management to another automation company the system would have to go down for an extended period of time which is not feasible for the systems of this size emerson electric may only be able to grow slowly over the long term due to the competitive market however there will always be a need for control systems in the future and these companies once again are also controlling systems that have been built in the past charging to manage pre-existing systems which can cost millions a year if the system is large and for emerson electric a lot of their systems tend to be very large

like i said in the previous slide this industry has some key players controlling the majority of the market schneider electric siemens eden and mitsubishi are among the largest and they specialize in different sectors schneider electric is one of the largest companies which competes strongly with emerson electric for automation solutions among other sectors siemens completes in the same industry once again among other sectors in specializes in hydraulic and mechanical power in the automotive sector and mitsubishi electric is often known for their ac motors used in a large variety of robotic and technical systems to be clear these companies compete with emerson electric across a variety of sectors not just the ones i’ve listed here so it really isn’t nearly that basic however the point of this slide is to teach the core lesson about this industry there are many other alternatives to emerson electric that offer amazing solutions to transportation energy and many other forms of technology however emerson still has a strong standing and a great reputation in this industry

mercen’s price to book appears to be similar to competitors at 5.45 and eden rocks a pb of 4.11 currently lower is better and for the priced earnings it seems to be a different case the price earnings is quite a bit lower for emerson electric at 24.58 and for eden it is at about 32.05 both of these companies seem to have pes that are relatively high as compared to the price earnings of the market the dow price earnings currently is at about 22.01 while emerson electric still trades at a relatively high price earnings of 24.58 this is high relative to past pes for the company as well and this also goes for eden and many other companies in this industry

in terms of intrinsic value the company seems to offer a downside of negative 36 percent after projecting the next 10 years of discounted cash flow from the past 10 years of cash flows from a perpetual growth rate of 2.5 and a discount rate of 8.5 percent the company has a intrinsic value of 58.37 relative to the friday’s closing price of 90.69

i also want to note the company’s earnings as their free cash flow ebitda and income appeared to be relatively steady and increasing due to their recovery and business from the copen 19 pandemic this company is innovating and buying out the competition however it is hard to determine how fast the company’s earnings are going to grow in the long term due to the slow growth of the industry

emerson buys back its own stock reducing the outstanding shares of the company this benefits the shareholders as it increases the company’s shareholder value the book value increases and the intrinsic value increases as there are less outstanding shares in the market however this should only happen when the stock is believed to be undervalued because the money can otherwise be reinvested back into the company for research and innovation instead this also goes for dividends the company currently pays a dividend equating to about a two point two two percent demand yield with a quarterly dividend of 0.515 dollars it gave 51.5 cents per quarter so that is about two dollars and six cents per share per year this is great and their dividend has been increasing relatively each year and the company is trying to distribute some extra funds to their shareholders like i mentioned earlier the company could reinvest the money however they are clearly determining that this money is extra and can be distributed to the shareholders without harms of the business so overall what do we think about emerson electric emr appears to be a bit overvalued at the time of recording in our view due to the relatively high priced earnings and a low intradict value over the long term we expect the earnings of emr to grow steadily with the automation industry however this rate of growth may be slow and investing in the s p 500 or the dow may outperform the stock this company offers a relatively safe dividend and consistent stock buybacks that grow shareholder value over the long term and i’m not a financial advisor or anything like that and this is not financial advice so please do your own research before investing anyway thank you so much for watching if you like this video please do like and subscribe it’s about our channel and please comment down below and tell us what you think about this company and we’ll try to get back to you anyway thanks again for watching have a great day everybody.