Getting a Charge From Emerson Electric and Its CEO

NEW YORK (TheStreet) -- In my formative years I was often told to "mind my manners" and "watch your mouth, young man." Thankfully I was born after the era where children had their mouths washed out if something perceived as "dirty" came out of them.

It seems unfair to vilify leaders who are rash or pungently candid. French author Jules Verne (1828-1905) wrote in his triumphant book "Around the World in 80 Days," "It may be taken for granted that, rash as the Americans are, when they are prudent there is good reason for it."

Perhaps that is also true when the CEO of Emerson Electric ( EMR) decided to dispense with prudence and lambast those who see EMR as a one-trick pony. At a meeting earlier this month near Columbus, Ohio, David Farr, EMR's outspoken chief executive, reacted to the notion that his company is "one-dimensional."

In truth. EMR is a global, diversified technology company that excels at designing and supplying products and technology, and providing engineering services and solutions to the industrial, commercial and consumer markets. Farr doesn't want his company to be under-rated or misrepresented, and who can blame him? Isn't that what shareholders want as well?

The Wall Street Journal, in an article titled "Emerson CEO Raises Eyebrows By Unleashing His Salty Tongue," drew attention to a shareholder-friendly company that many investors want to own.

Farr, who has used profanity in public before, reacted to those in the media who insist on minimizing the capacities and dimensions of EMR. "If I see that in writing, one more g-- d-- time, I'm going to tear them apart."

No doubt the CEO was speaking figuratively, and he later apologized for the way he said what he said:

"I apologize for swearing. You guys p-- me off when you write that. You haven't figured that out. And I've been training real hard the last couple of years to kick your a--."

The 57-year-old CEO does look fit and like a force to be reckoned with. That's part of the reason why he's a very effective leader.

The Journal article quoted Scott Davis of Barclays Capital as saying about Farr that he "is well-liked and proven, yet his questionable outbursts at analyst events and conference calls do not inspire confidence."

In an interview mentioned in the article, Jeffrey Sprague of Vertical Research Partners aired similar concerns. "I always take such comments from David with a grain of salt, because he is very aggressive, passionate and competitive. I don't think he means any harm, but I do think he at times goes too far, which needlessly raises investor questions and concerns," Sprague said.

To that last part I beg to differ. I'm not approving of public profusions of profanity, but I'm even less tolerant of the media judging an obviously outstanding corporate leader by an occasional outburst or two. Farr's candor and willingness to call a pig's ear a pig's ear and not a silk purse is rather endearing. Plus, if you've ever seen him on Jim Cramer's "Mad Money" TV show you know he's a good communicator.

Also endearing is the notion of owning shares of a company as fiscally sound as EMR. This industry titan with a market cap of over $41 billion has given its shareholders a return on equity (trailing 12 months) of over 20% and a dividend that by the end of 2012 had grown to $1.64 per share.

Now, if the current correction happens to suppress EMR's share price to around $56, it would lift the dividend's yield to price to almost 3%. Quite remarkable for a company whose past 52-week stock price performance outperformed the S&P 500 by nearly 30%!

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Currently the share price is 14% above its 200-day moving average price of slightly more than $50. As the chart below shows us, EMR's diluted quarterly year-over-year EPS growth is the "power" that's driving the share price. Farr's remarks are the least colorful part of this profitable company.

EMR Chart EMR data by YCharts

An Emerson spokesperson was quoted by the Wall Street Journal as saying that "to some degree, these remarks by CEO Farr were lighthearted and are taken out of context." The same added that Farr's "willingness to be candid and open with investors is welcomed and appreciated. He is recognized for his charisma and thought leadership."

Another analyst who attended the meeting, Eli Lustgarten of Longbow Research, said he was "not at all" offended by Farr's language. "You have to respect a CEO who is that passionate about his company," Lustgarten said. Hear, hear, and more power to you and Farr!

EMR pays out its next dividend on March 10 and the ex-dividend date has already passed. Its CEO is a force for change, government and corporate accountability and in the latest fiscal year was paid a total of $10.4 million for his services. Perhaps that's commensurate with his ability to guide Emerson to $24.4 billion in global sales in the fiscal year that ended on Sept. 30, 2012.

Analysts expect that number to top $25 billion in the current fiscal year on the crest of over a 6% increase in EPS. If EMR can surprise to the upside in the quarters ahead, it won't be difficult for the analysts' consensus estimate one-year price target of $60 a share to be reached.

David Farr, you have our permission to at times sound like a person who periodically suffers from Turrets Syndrome as long as you continue to be such a competent skipper of this massive, money-making ship we call Emerson Electric.

We've done the math, Mr. Farr. If we buy shares at $56 or below, collect the 3% dividend for a year and the share price pops up to $60, we'll be looking at a total return on our investment of over 10%.

We can live with that, and we promise to be more careful about not trying to pigeon-hole your enduringly successful enterprise.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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