Industrial strength

03/06/19
 
●Emerson Electric (EMR) up more than 20% YTD
●Company was in acquisition mode in 2018
●Stock traditionally has also been a quality dividend stock

In the high-stakes mergers and acquisitions game, stocks can be rocked (for good or ill), expectations dashed, and corporate feelings bruised.

When Emerson Electric’s (EMR) bid to buy fellow industrial powerhouse Rockwell Automation (ROK) folded in late 2017, it may have been a disappointment to Emerson and its investors (or maybe ROK’s investors), but judging by how EMR has done since then, the company didn’t spend much time licking its wounds, real or imagined.

Both stocks, in fact, are up more than 20% from their December 2018 lows, and if you go back to Emerson’s November 2017 bottom (around the time the company pulled its bid), EMR has outperformed ROK:

Emerson Electric (EMR) and Rockwell Automation (ROK), 11/16/17–3/5/19. Emerson Electric (EMR) and Rockwell Automation (ROK) comparison price chart. Moving on.

Source: Power E*TRADE


Emerson is one of those companies (and stocks) that, once you first look at it, you may be surprised you didn’t know about it earlier. A $43 billion market cap, more than 87,000 full-time employees, average daily volume in the millions of shares—that’s no lightweight. But it may fly under the radar of some short-term players because of the perception of its sector (industrials) and business (electrical equipment) as one of the less sexy corners of the market. It’s not in the public eye the way many retail companies are.

Longer-term investors are probably more familiar with EMR because of its status as a strong dividend stock—its roughly 30% decline late last year likely made it an interesting candidate for investors looking to pick up a so-called “dividend aristocrat” at a relatively low level.1

As many other traders are aware, though, industrials are the S&P 500’s (SPX) leading sector so far this year (+18%), and Emerson’s business consists of supplying high-tech solutions to global industry. One example: EMR recent opened a multi-million-dollar Per Permian Basin Service Center (think “big oil”) designed to provide that industry with digital automation for optimizing production.2

It’s one of several initiatives the company has made in recent months, one of the more notable being last year’s acquisition of Germany-based Aventics, a company that fills some of the specific automation needs EMR was looking for in the Rockwell deal.3

Emerson Electric (EMR) price chart. Between support and resistance.

Power E*TRADE


So, with the stock up more than 20% off its December lows, traders who see the potential for more upside may be deciding whether it is likely to come sooner or later. The chart above shows EMR was consolidating (along with the broader market) after rallying toward resistance around its November highs. Bulls who feel EMR has the potential to challenge its 2018 peak around $80 may notice that the stock has an implied support level around $66 (several swing lows last year bottomed near that level)—a possible target in the event the consolidation turns into a pullback.

Market Mover Update: The S&P 500 (SPX) has spent five days moving sideways since hitting resistance on February 25. After reaching $1,350/ounce on February 20, April gold futures (GCJ9) have pulled back around 5% to around $1,282.50—the support level of the market’s late-January lows.

Today’s numbers: ADP Employment Report (8:15 a.m.), International Trade (8:30 a.m.), EIA Petroleum Status Report (10:30 a.m.), Beige Book (2 p.m.).

Today’s earnings include: Baozun (BZUN), Dollar Tree (DLTR), Syneos Health (SYNH), Casey's General (CASY), SailPoint (SAIL).

 

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1 Kiplinger. 18 Dividend Aristocrats That Have Gone on Deep Discount. 2/1/19.

2 Zacks Equity Research. Emerson (EMR) Unveils New Service Center in Permian Basin. 3/4/19.

3 Bloomberg. A $28 Billion Deal Defeat Turns Sweet for Emerson. 5/17/18.

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