NEW YORK (TheStreet) -- Emerson Electric (EMR) shares are up 1.3% to $59.20 in early market trading on Monday after the global diversified technology company agreed to sell its power transmission business to Regal Beloit (RBC) for $1.44 billion.
The deal brings to fruition the company's announcement in June that it was looking to sell the unit in order to focus on its higher revenue generating businesses.
The power transmission business, which makes couplings, bearings and gear components, generated $600 million in revenue in 2014 and employed over 3,000 people. Regal Beloit, which makes electric motors, paid $1.4 billion in cash for the unit with certain post-retirement liabilities making up the rest of the purchase price.
TheStreet Ratings team rates EMERSON ELECTRIC CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate EMERSON ELECTRIC CO (EMR) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. 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 these 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. Compared to other companies in the Electrical Equipment industry and the overall market, EMERSON ELECTRIC CO's return on equity exceeds that of both the industry average and the S&P 500.
- 44.69% is the gross profit margin for EMERSON ELECTRIC CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.02% trails the industry average.
- EMERSON ELECTRIC CO's earnings per share declined by 47.3% 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 ($4.00 versus $3.03).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.5%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.60, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.97 is weak.
- You can view the full analysis from the report here: EMR Ratings Report