Barbarian At The Gate: Emerson Electric (EMR)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Emerson Electric ( EMR) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Emerson Electric as such a stock due to the following factors:

  • EMR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $320.3 million.
  • EMR has traded 833,751 shares today.
  • EMR traded in a range 221.3% of the normal price range with a price range of $1.97.
  • EMR traded above its daily resistance level (quality: 138 days, meaning that the stock is crossing a resistance level set by the last 138 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on EMR:

Emerson Electric Co. provides technology and engineering solutions to industrial, commercial, and consumer markets worldwide. It operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions. The stock currently has a dividend yield of 3.1%. EMR has a PE ratio of 16. Currently there are 3 analysts that rate Emerson Electric a buy, 2 analysts rate it a sell, and 16 rate it a hold.

The average volume for Emerson Electric has been 5.0 million shares per day over the past 30 days. Emerson Electric has a market cap of $40.0 billion and is part of the industrial goods sector and industrial industry. The stock has a beta of 1.13 and a short float of 3.4% with 4.74 days to cover. Shares are down 2.6% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Emerson Electric as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, 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 shows weak operating cash flow.

Highlights from the ratings report include:
  • EMERSON ELECTRIC CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. 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 ($3.41 versus $3.03).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electrical Equipment industry. The net income increased by 77.9% when compared to the same quarter one year prior, rising from $547.00 million to $973.00 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Electrical Equipment industry and the overall market, EMERSON ELECTRIC CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • 42.93% 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 18.01% compares favorably to the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 12.5%. Since the same quarter one year prior, revenues slightly dropped by 7.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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