BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 04/11/2016 TARGET PRICE $64.09 BUSINESS DESCRIPTION Emerson Electric Co. designs and manufactures products, and delivers services to industrial, commercial, and consumer markets worldwide. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 0.58 6.42-1.91 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -8.75-13.06-5.33 Net Income -62.08-26.79-2.26 EPS -59.86-22.76 1.17 RETURN ON EQUITY (%) Ind Avg S&P 500 Q2 2016 25.09 19.47 11.83 Q2 2015 29.55 20.58 13.71 Q2 2014 19.07 16.98 14.43 P/E COMPARISON Sector: Industrials Sub-Industry: Electrical Components & Equipment Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years 2014 2015 2016 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $64.09 Rating History BUY HOLD BUY HOLD BUY Volume in Millions 68 65 63 60 58 55 53 50 48 45 43 60 40 20 0 19.00 EPS ANALYSIS¹ ($) 22.86 Ind Avg 25.05 S&P 500 RECOMMENDATION We rate () a BUY. This is driven by some important positives, which we believe should have a greater impact than any nesses, 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 good cash flow from operations, expanding profit margins, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income. HIGHLIGHTS Net operating cash flow has significantly increased by 100.83% to $719.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 71.43%. 43.49% is the gross profit margin for which we consider to be. It has increased from the same quarter the previous year. Regardless of the results of the gross profit margin, the net profit margin of 7.48% trails the industry average. Q1 0.65 Q2 0.77 Q3 1.03 2014 Q4 0.58 Q1 0.75 Q2 1.42 Q3 0.84 2015 NA = not available NM = not meaningful Q4 0.98 Q1 0.53 Q2 0.57 2016 1 Compustat fiscal year convention is used for all fundamental data items. Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year. Regardless of the drop in revenue, the company managed to outperform against the industry average of 11.1%. Since the same quarter one year prior, revenues slightly dropped by 8.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. 's debt-to-equity ratio of 0.95 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 0.88 is. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -20% 80% UNFAVORABLE ABB 10% RBC HUBB ENS ETN EBITDA Margin (TTM) AYI ROK FAVORABLE ST AME 27.5% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $2.6 Billion and $45.8 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -20% 80% SCTY UNFAVORABLE -3% Earnings Yield (TTM) AYI FAVORABLE ST HUBB RBC AME ABB ROK ETN ENS Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -13.1% and 75.6%. Companies with NA or NM values do not appear. 7% INDUSTRY ANALYSIS The US electrical equipment industry is divided into two segments, electrical components & equipment and heavy electrical equipment. The electrical components & equipment segment includes manufacturers of small-scale electrical equipment, such as motors, electric heating, and cooling systems, small generators, storage batteries, and related equipment. The heavy electrical equipment segment includes manufacturers of power-generating equipment and other equipment, such as power turbines, machinery for fixed-use, and large electrical systems. There are more than 2000 electrical equipment companies operating in the industry. The industry is cyclical and manufacturers distribute their products to other manufacturing industries, wholesalers, and the construction industry. Major players are ABB (ABB), Eaton Corp (ETN), Rockwell Automation (ROK), Emerson Electric (), Plug Power (PLUG), and Ametek (AME). Establishing an efficient and flexible supply chain drives manufacturing excellence. With increasing competition from global players, minimizing inventory and lead times while maximizing top-line with quick-to-market products is crucial. Electric power equipment, including metal-clad switchgear, switchgear relays, and ducts, has growth potential in the electric utilities market due to the increasing investment in automated systems, which results in greater efficiency and lower operating costs. Latin America and Asia, with their increasing population, rapid industrialization, and infrastructure investments, represent a substantial portion of the export market. The industry may incur significant expenditures going forward because of the need to produce manufacturing equipment with lower carbon dioxide emissions. The United Nations Framework Convention on Climate Change expects to reduce total electricity consumption 40% by 2056. The industry is dependent on electrical distributors and industry wholesalers, who form the main distribution channel. These distributors control visibility and availability of products to the end market. These distribution companies, which typically work on low margins, make it challenging for smaller players to compete. The largest distributors acquire smaller independent distributors in order to gain market share. Electronics and electrical equipment manufacturers are trying to streamline operations and eliminate waste. Many companies are pursuing reduced operating costs and increased manufacturing flexibility by implementing improvement methodologies such as lean manufacturing and Six Sigma. In order to be cost and price competitive, manufacturers are moving component and final assembly production to facilities outside of the US. Low interest rates may boost capital expenditure and mergers and acquisitions in the domestic market. Demand for electrical transmission and distribution equipment is expected to grow 3.6% per annum due to anticipated increases in non-utility generation and regulatory activities, which will spur investment in the electric grid. PEER GROUP: Electrical Equipment Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 55.49 35,700 19.00 20,958.00 1,930.00 ST SENSATA TECHNOLOGIES HLDG N 37.43 6,384 17.25 3,020.83 372.95 HUBB HUBBELL INC 105.72 5,849 22.12 3,415.50 275.80 ABB ABB LTD 20.70 45,845 26.88 34,341.00 1,687.00 ETN EATON CORP PLC 63.21 28,950 15.31 20,445.00 1,917.00 ENS ENERSYS INC 63.75 2,766 21.46 2,316.25 136.15 RBC REGAL BELOIT CORP 59.28 2,652 17.96 3,416.20 148.50 SCTY SOLARCITY CORP 26.40 2,595 NM 454.71-61.79 ROK ROCKWELL AUTOMATION 118.46 15,431 20.78 6,049.60 760.90 AYI ACUITY BRANDS INC 264.99 11,630 43.30 3,125.40 268.00 AME AMETEK INC 47.36 11,054 19.49 3,934.63 582.92 The peer group comparison is based on Major Electrical Components & Equipment companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Emerson Electric Co. designs and manufactures products, and delivers services to industrial, commercial, and consumer markets worldwide. Its Process Management segment offers systems and software; measurement and analytical instrumentation; valves, actuators, and regulators; industry services and solutions; and digital plant architecture solutions. This segment also provides consulting services for precision measurement, control, monitoring, asset optimization, and safety and reliability of oil and gas reservoirs and plants. It serves oil and gas, refining, chemicals, power generation, pharmaceuticals, food and beverages, pulp and paper, metal and mining, and municipal water supplies markets. The company's Industrial Automation segment provides alternators and other power generation equipment; commercial and industrial motors and drives; fluid power and control products; electrical distribution equipment; and materials joining and precision cleaning products. Its Network Power segment designs, manufactures, installs, and maintains critical and uninterruptible power systems, thermal management equipment, integrated data center control devices, software, monitoring, and data center infrastructure management solutions for telecommunications networks, data centers, and other critical applications. The company's Climate Technologies segment supplies compressors, temperature sensors and controls, thermostats, flow controls, and remote monitoring technology and services residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and marine control areas. Its Commercial & Residential Solutions segment provides tools for professionals and homeowners; home storage systems; and appliance solutions. The company was formerly known as The Emerson Electric Manufacturing Company and changed its name to Emerson Electric Co. in 2000. Emerson Electric Co. was founded in 1890 and is headquartered in St. Louis, Missouri. 8000 West Florissant Avenue, PO Box 4100 St. Louis, MO 63136 USA Phone: 314-553-2000 http://www.emerson.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 3.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 60% of the stocks we rate. Total Return 2.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 3.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 60% of the stocks we monitor. Solvency 4.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 80% of the companies we analyze. Income 4.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 80% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the second quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. Sales and net income have dropped, although the growth in net income underperformed the average competitor within the industry, the revenue growth did not. has liquidity. Currently, the Quick Ratio is 0.88 which shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. 0.85 Q3 FY16 3.07 E 2016(E) 3.29 E 2017(E) During the same period, stockholders' equity ("net worth") has decreased by 13.74% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. INCOME STATEMENT Net Sales ($mil) 4,928.00 5,400.00 EBITDA ($mil) 925.00 1,000.00 EBIT ($mil) 730.00 795.00 Net Income ($mil) 369.00 973.00 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 3,322.00 3,256.00 Total Assets ($mil) 21,764.00 22,968.00 Total Debt ($mil) 7,294.00 6,630.00 Equity ($mil) 7,692.00 8,918.00 PROFITABILITY Gross Profit Margin 43.49% 42.93% EBITDA Margin 18.77% 18.51% Operating Margin 14.81% 14.72% Sales Turnover 0.96 1.05 Return on Assets 8.86% 11.47% Return on Equity 25.09% 29.55% DEBT Current Ratio 1.21 1.18 Debt/Capital 0.49 0.43 Interest Expense 54.00 49.00 Interest Coverage 13.52 16.22 SHARE DATA Shares outstanding (mil) 643 674 Div / share 0.48 0.47 EPS 0.57 1.42 Book value / share 11.96 13.23 Institutional Own % NA NA Avg Daily Volume 3,616,881 4,354,877 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 4/11/2016. As of 7/21/2016, the stock was trading at a price of which is 2.4% below its 52-week high of $56.82 and 34.5% above its 52-week low of $41.25. 2 Year Chart BUY: $67.36 2014 2015 HOLD: $46.43 BUY: $49.62 HOLD: $44.10 BUY: $53.78 $70 $60 $50 MOST RECENT RATINGS CHANGES Date Price Action From To 4/11/16 $53.78 Upgrade Hold Buy 1/8/16 $44.10 Downgrade Buy Hold 12/1/15 $49.62 Upgrade Hold Buy 9/3/15 $46.43 Downgrade Buy Hold 7/21/14 $67.36 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 7/21/2016) 38.93% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 31.51% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 29.56% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of 22.86 for the Electrical Equipment industry and a discount compared to the S&P 500 average of 25.05. Conducting a second comparison, its price-to-book ratio of 4.64 indicates a significant premium versus the S&P 500 average of 2.81 and a premium versus the industry average of 3.92. The price-to-sales ratio is below both the S&P 500 average and the industry average, indicating a discount. The valuation analysis reveals that, seems to be trading at a discount to investment alternatives within the industry. Price/Earnings 19.00 Peers 22.86 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a discount to its peers. Price/Projected Earnings 16.87 Peers 19.70 Average. An average price-to-projected earnings ratio can signify an industry neutral stock price and average future growth expectations. is trading at a valuation on par with its peers. Price/Book 4.64 Peers 3.92 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a premium to its peers. Price/Sales 1.70 Peers 1.94 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 12.73 Peers 13.32 Average. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth NM Peers 7.93 Neutral. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. 's negative PEG ratio makes this valuation measure meaningless. Earnings Growth lower higher -22.76 Peers 1.74 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher -13.06 Peers -3.20 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5