Emerson Electric Co (EMR, Financial) recently recorded a 3.84% gain, with its Earnings Per Share (EPS) (EPS) sitting at 8.13. This sparks the question: is the stock modestly overvalued? This article aims to provide an in-depth valuation analysis of Emerson Electric Co. We encourage you to read on to gain valuable insights into the company's financial status.
Company Introduction
Emerson Electric Co is a renowned seller of automation equipment and services, operating under two major segments: intelligent devices and software control. The company also holds a majority interest in AspenTech, an industrial software business. Emerson Electric Co is particularly known for its process manufacturing solutions, which include measurement and analytical instrumentation, control valves, actuators, and other products and services. With nearly half of its sales coming from the Americas, the company's stock price currently stands at $95.15, modestly overvalued when compared to the GF Value of $84.85.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor rooted in past performance and growth, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price significantly surpasses the GF Value Line, it's likely overvalued, and its future return may be poor. Conversely, if it falls significantly below the GF Value Line, it's probably undervalued, potentially promising higher future returns.
Given its current share price, Emerson Electric Co's stock is estimated to be modestly overvalued. This implies that the long-term return of its stock might be lower than its business growth.
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Financial Strength
Investing in companies with poor financial strength can be risky. Assessing the cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. Emerson Electric Co's cash-to-debt ratio stands at 0.19, which is lower than 85.04% of companies in the Industrial Products industry. The company's overall financial strength is rated 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. Emerson Electric Co has been profitable for the past 10 years, with an operating margin of 18.25%, ranking better than 89.15% of companies in the Industrial Products industry. The overall profitability of Emerson Electric Co is rated 8 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. Emerson Electric Co's average annual revenue growth is 3.6%, which is lower than 59.83% of companies in the Industrial Products industry. However, its 3-year average EBITDA growth is 12.8%, ranking better than 56.86% of its industry peers.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. ROIC measures how efficiently a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Emerson Electric Co's ROIC over the past 12 months is 8.62, while its WACC is 10.1.
Conclusion
In conclusion, the stock of Emerson Electric Co (EMR, Financial) is estimated to be modestly overvalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 56.86% of companies in the Industrial Products industry. To learn more about Emerson Electric Co stock, check out its 30-Year Financials here.
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