Emerson Stumbles Again On Margins, But The Long-Cycle Story Still Has Appeal

When I last wrote about Emerson (EMR), I tempered some of the undervaluation I thought I saw with the comment that, “… I have some concerns that the shares could underperform as investors look for more exciting stories.” Prior to a recent sell-off, Emerson shares had more or less been drifting around the sector averages, but lagged the likes of Ingersoll-Rand (IR), Honeywell (HON), and Yokogawa (OTCPK:YOKEY). Actual results did show further slowing in the business, but this looks more like a pause than a real shift.

I do think process automation order momentum has probably peaked, but there’s a rich project funnel to deliver on over the next few years, and I think Emerson has meaningfully improved its process automation operations after the Pentair (PNR) deal. Further progress in discrete and hybrid markets would be gravy on top of that. I do have some concerns about the Climate business, but not enough to cancel out what looks like a relatively undervalued opportunity in an expensive industrial sector.

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Emerson Stumbles Again On Margins, But The Long-Cycle Story Still Has Appeal