Industrial technology and software company Emerson Electric (EMR), which provides automation solutions and software to various industries, maintained robust sales growth in both its Software and Control and Intelligent Devices segments through the first half of the fiscal year, and analysts believe the firm is likely to maintain this momentum, thanks to strong demand from the energy, process, and aerospace and defense markets.
Besides being well-positioned to benefit from an accelerating shift toward automation across a variety of industries, Emerson Electric has also made a number of advantageous acquisitions and sell-offs in recent quarters. This has helped the company simplify and streamline its portfolio, reduce net leverage, and target key areas for expansion.
These are several of the reasons why analysts across Wall Street are bullish on Emerson Electric stock. I share this sentiment and believe the stock may continue to trend upward, even after rising 30% in the past year. Below, we take a closer look at what is fueling this growth from Emerson Electric shares.
Ascendant Sales Trajectory
Emerson’s Software and Control division, comprising Control Systems & Software, Test & Measurement tools, and products related to the AspenTech arm, posted year-over-year sales growth of 55.5% for the first half of 2024 and 56.2% for the second quarter of this year.
This massive growth is due to multiple factors. First, late last year, the company integrated sales related to National Instruments (a measurement and automation systems company it acquired for $8.2 billion in October 2023), which are now under the Test & Measurement segment.
Still, even without this new bundle of sales, the segment has seen robust growth. For instance, Control Systems & Software, up 10.8% year-over-year for the first half of 2024, has experienced increasing demand, thanks to the process industry and energy markets.
An increasing U.S. defense budget and government research have helped fuel strong sales in Test & Measurement as well, although the area is so new within Emerson’s reporting that its trajectory is not yet well-defined.
Focus on Automation
Although perhaps less publicly visible than chatbots and other popular recent AI tools, automation is a key application of artificial intelligence with a significant impact throughout the Industrials sector. The global industrial automation and control systems market is estimated to be $172.3 billion as of 2022 and is expected to grow at a CAGR of 10.5% from 2023 to 2030.
Emerson’s acquisition of National Instruments (NI) is likely to be key to the company’s leadership in the automation space for years to come. This purchase has allowed Emerson to expand into high-growth markets, including semiconductors, electric vehicles, and aerospace.
Strategic Acquisitions and Sales
The NI acquisition last year was crucial for Emerson Electric’s automation offerings, but it is not the only important major buy or sell the company has completed in recent quarters.
Emerson has sold off its remaining stake in the Copeland Joint Venture with Blackstone (BX). Formerly Emerson Climate Technologies, this business was valued at $14 billion in May 2023. By selling its remaining interest, Emerson has both simplified its portfolio considerably, allowing it to sharpen its focus on key growth areas and receive pre-tax cash proceeds of $3.4 billion. The sale is also likely to reduce Emerson’s net leverage and allow it increased flexibility for future acquisitions.
Acquisitions, including National Instruments (NI), positively impacted net sales growth for the second quarter of Fiscal 2024 by 10%. Besides NI mentioned above, essential to this growth has been Emerson’s acquisitions of Afag and Flexim, both completed last summer.
By acquiring Afag, Emerson has further expanded its reach in the automation space, including in the battery manufacturing, electronics, and medical spaces. The Flexim purchase boosts Emerson’s offerings in the flow measurement business.
Is Emerson Electric Stock a Buy, According to Analysts?
Analysts across the Street view Emerson as a Strong Buy based on 13 Buy ratings, two Holds, and zero Sells. The average EMR stock price target of $130.36 represents upside potential of 11.4%.
Conclusion: Sales Momentum Is Strong
Through a focus on automation and strategic acquisitions and sell-offs, Emerson Electric is already experiencing significant growth in sales in multiple business areas. The company appears well-positioned to be able to continue to capitalize on increasing demand across multiple industries, making it a Strong Buy in the eyes of many Wall Street analysts, and I agree with them.
