Slow and Steady Emerson Is Adding a Little Juice to Its Growth Engine

Remember the story of the tortoise and the hare? Do you remember who won? And we've been chasing the hare through the thicket for the past year.

Monday's Stories

After This Year's Pain, Wall Street Has High Hopes for 2001

The Death of the Old Way

2001 Will Be Proving Ground for Pumped-Up Brokerages

Stock in the Spotlight 2001: Emerson Electric

Maybe in the coming year it might be a good idea to keep at least one eye on the tortoise, see where he leads us. As part of the 2001: New Year, New Rules package, we're going to have a week's worth of Stocks in the Spotlight to check out some companies that have been flying below many radar screens this year, but may just make waves in the next.

Slow and steady may in fact be the mantra of Old Economy staple Emerson Electric(EMR Quote). The 110-year-old electrical products and systems manufacturer has been in the game a long time, and has done pretty well for itself. And now, the company is slowing and quietly grafting on some new technology pursuits that may put a little extra juice in its growth engine.

"They are a very profitable company, and very consistent," says Morningstar stock analyst David Kathman. In meeting fiscal 2000 fourth-quarter earnings last month of 86 cents a share, Emerson completed its 43rd straight year of earnings growth. That's an impressive track record of consistency and duration, especially when compared with the dot-coms and telecoms that have led the recent market downward.

Emerson is well-poised for more growth due to the recent changes it has undergone, stock watchers say. Most recently, the St. Louis-based company has embarked on a wide-scale advertising campaign. "They are trying to juice up their growth," says Kathman, by undergoing "more branding with the general public to get a little better-known." According to Katharine Button Bell, Emerson's chief marketing officer, the company is looking to spend between $8 and $10 million on new advertising.

The Emerson Electric File

Operations

Business: Manufactures electrical and electronic products and components

1999 Revenue: $15.5 billion

1999 Earnings Per Share: $3.30

2000 Estimated Earnings Growth: 12%

Stock Snapshot

52-Week Range: $40.50 - 79.75

Percentage Change from Jan. 1: 23.8%

Market Cap: $30.4 billion

P/E Multiple: 21.6

Shares Outstanding: 426.7 million

Emerson is also expanding its operations, deviating from sole production of electrical products and components. In fact, Emerson even underwent a name change recently to reflect this move, now existing as simply Emerson. The rebirth of Emerson comes through development of electronics and telecommunications divisions within the company. "They are trying to get into these newer things without sacrificing their core business," said Kathman. He added that they have been handling these new endeavors well, and have not gotten swept up in the technological turmoil seen in the past year, because "they're not staking the whole business on telecom, but are using it for growth and profitability," Kathman said.

A possible key factor to their future growth is that currently foreign sales account for almost 40% of Emerson's sales. With the future looking bright for the strength of the euro, significant overseas sales could provide a boost.

Back in October, CEO Charles Knight stepped down after 27 years in the position to allow the COO David Farr to step in. Knight had expressed his desire to grow the New Economy divisions of the company into the main source of revenue earlier in the year, according to Kathman. And by passing control to Farr, this growth will continue.

Emerson's fastest-growing segment is one of its most recent developments, Emerson Network Power. This and the company's recent refocusing on the connectivity area of networking are very New Economy, and are helping the company's move towards more modern, faster-paced areas of technology. Last year, Emerson acquired Nortel Networks' (NT Quote) advanced power systems business and shares in communications product manufacturer Astec (ASTE Quote).

5 Day

5 Year

Some of the key stats to this company come in examining the stock price. Up 27.2% year to date, the stock is notably up a remarkable 73.3% since March 10 of this year. March 10, for those who don't remember, was the day the Nasdaq Composite Index hit its peak. Emerson has been climbing -- ahem, steadily -- uphill since then.

Emerson has a price-to-earnings multiple of 22.7, forward and trailing. With a revenue increase of 9% in fiscal year 2000, and earnings increases of 8% and 10% over the last two years, respectively, the numbers seem steady. Analysts have upped future year-over-year earnings growth to 12%-14% in the next two years.

"They know how to be consistent and not overstep their bounds. Given their track record, they're looking good," said Kathman. Below is a list of the top-10 funds that also think Emerson is looking good.

After the wild ride of the past year, wouldn't a year of simple, steady growth be a comfort? Oh, the comfort...

Funds With the Biggest Stake in Emerson Electric
Fund	Percentage of Assets in EMR	1-Week Return	YTD Return
(FSCGX Quote)Fidelity Select Industrial Equipment	6.3%	-5.4%	-10%
(ENCEX Quote)Enterprise Growth and Income Y	5.6	-4.3	0.3
(MPGFX Quote)Mairs & Power Growth	4.7	-4.9	18.6
(QFVFX Quote)Oppenheimer Quest Value A	4.7	-0.4	6.4
(GRGSX Quote)Delaware Growth Stock A	4.4	-2.8	-5.3
(SDWAX Quote)SunAmerica Dogs of Wall Street A	4.3	-0.9	-6
(BSIAX Quote)Bear Stearns Insiders Select A	4.3	-2.1	12.5
(RSICX Quote)RSI Retirement Trust Core Equity	4.2	-5	-5.3
(MBBVX Quote)Bartlett Basic Value A	3.5	-2.8	-3.4
(NPVAX Quote)Nationwide Prestige Large Cap Value A	3.4	-3.4	9.3
Source: Morningstar. Performance through Dec. 18.

Background Check Check out these recent TheStreet.comstories on EMR

Emerson Electric Meets Fourth-Quarter Expectations (11/7/00) : Emerson Electric met analysts' expectations for the fourth quarter, citing continued demand for network power and connectivity products and services ... more

Emerson Electric Names Farr CEO; Knight Remains Chairman (10/12/00) : Emerson Electric said its current chief executive, Charles Knight, who has spent 27 years as the top man at the company, will be stepping down from the post ... more