Will Emerson Electric (EMR) Stock be Affected by Network Power Business Spinoff?

NEW YORK (TheStreet) -- Emerson Electric Co. (EMR) announced on Tuesday morning that it is planning to spin off its Network Power business, while also exploring other strategic options.

Shares of Emerson Electric are down by 0.11% to $55.50 in mid-day trading today.

The technology and engineering solutions provider said the spinoff is designed to help streamline Emerson's portfolio, drive growth and increase shareholder value.

Emerson said it will also be conducting a review and assessment of its corporate services and structure to bring them into order with the company's smaller scale and sharper focus.

"As a publicly traded company, Network Power will be the world's leading, stand-alone provider of thermal management, A/C and D/C power, transfer switches, services and infrastructure management systems for the data center and telecommunications industries," Emerson said in a statement.

"Creating two, independent companies will position both businesses to continue as leaders and to pursue distinct strategies to drive profitable growth. Emerson and Network Power will each have sharper strategic focus, enabling both companies to better allocate resources, incentivize employees and allocate capital to capture the significant long-term opportunities in their respective markets,"company CEO David Farr said in a statement.

The spinoff is expected to be completed by September 30, 2016.

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 multiple 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 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 analysis by TheStreet Ratings Team goes as follows:

  • 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 ($3.40 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 11.6%. 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.
  • You can view the full analysis from the report here: EMR Ratings Report

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