EMR - Emerson Electric upgraded to Buy at HSBC Securities

2023-06-15 11:04:52 ET

Emerson Electric ( NYSE: EMR ) on Thursday was upgraded to Buy from a previous investment rating of Hold by analysts at HSBC Securities. They said the technology and engineering company is poised for growth with its efforts to focus on higher-margin businesses such as industrial automation.

“We like the newly transformed Emerson ( EMR ) for its higher organic growth and improved margin potential with higher share of industrial software business (circa 14% versus circa 6% prior to transformation), discrete industries (circa 18% versus circa 9% earlier) and exit from the historically lower-organic-growth climate technologies business,” Puneet Garg, analyst at HSBC, said in a June 15 report. “It should also benefit from revenue and cost synergies from recent acquisitions given the cohesive nature of the overall portfolio.”

Emerson ( EMR ) in the past couple of years reached a deal to acquire National Instruments ( NASDAQ: NATI ), while also divesting from sensing- and protection-technology business Therm-O-Disc and garbage-disposal maker InSinkErator. Emerson ( EMR ) also sold off a majority interest in its climate-technologies unit that makes heating and cooling equipment, and merged two of its software businesses with Aspen Technology ( NASDAQ: AZPN ).

HSBC raised its price target on Emerson ( EMR ) to $100 a share from $79 a share previously, based on a price-to-earnings multiple of 20.5 times, up from 14.6 times, 12-month forward EPS of $4.88, and a 12% premium to the Standard & Poor’s Industrials group.

“Our medium-term estimates do not capture the synergy potential from AspenTech and National Instruments deals as they are due to be realized over the next five years,” according to HSBC. “Successful realization of those revenue and cost synergies would offer additional upside for investors.”

Seeking Alpha contributor Wealth Analytics rates Emerson Electric ( EMR ) as a Buy based on its exposure to renewable energy, among other business traits . Columnist Aaro Pertmann has a Buy rating on Emerson Electric ( EMR ) based on its industrial automation business .

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