Shares of the technology company have underperformed Goldman Sachs' coverage by 12% year-to-date, and although consensus estimates have been cut, the firm believes estimates are still too high.
"The crux of our call is that estimates across the Street are too high and we believe there is discovery value particularly as pricing/MRO weakens," Goldman Sachs said in a note.
The firm believes that Emerson's current restructuring actions are "a step in the right direction," but not enough. Emerson has high exposure to China and emerging markets and weaknesses in its portfolio that need to be addressed.
The firm also said that B/S flexibility is limited. Goldman Sachs lowered earning estimates for full year 2016 and 2017 to $2.95 and $3.25 per share from $3.20 and $3.50 per share, respectively.
Shares of Emerson were down 0.64% to $46.49 in late afternoon trading on Thursday.
Separately, TheStreet Ratings team rates EMERSON ELECTRIC CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate EMERSON ELECTRIC CO (EMR) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Electrical Equipment industry and the overall market, EMERSON ELECTRIC CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- EMERSON ELECTRIC CO's earnings per share declined by 18.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EMERSON ELECTRIC CO increased its bottom line by earning $3.03 versus $2.76 in the prior year. This year, the market expects an improvement in earnings ($3.22 versus $3.03).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 14.1%. Since the same quarter one year prior, revenues fell by 12.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 43.30% is the gross profit margin for EMERSON ELECTRIC CO which we consider to be strong. Regardless of EMR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EMR's net profit margin of 10.24% compares favorably to the industry average.
- EMR's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.92 is weak.
- You can view the full analysis from the report here: EMR Ratings Report