艾默生电气

Emerson reported 7% year-over-year sales growth. A 270-basis-point margin expansion translated into 13% adjusted earnings-per-share growth.

Why it matters: Segment-level results varied, but strength in Emerson's automation equipment portfolio more than offset the flattish growth from its nonautomation tools business. Emerson's safety and productivity segment has been a drag on Emerson's top line, growing 2% year over year. Meanwhile, its software and systems segment grew 11%. We believe Emerson's automation portfolio is aligned with several strong trends, including the energy transition, reshoring, and now the artificial intelligence data center buildout. We model growth above Emerson's historical average.

The bottom line: We maintain our $104-per-share fair value estimate for wide-moat Emerson. Shares trade overvalued in 2-star territory. At 24 times forward earnings (versus Emerson's historical 20 times), the market seems to be extrapolating elevated growth far into the future. Emerson's business is relatively cyclical; spending on capital equipment and factory maintenance wanes during economic downturns. We model the firm as such by incorporating a depressed midcycle margin.

Between the lines: Emerson has spent three years completing a portfolio transformation. It sold Copeland ($14 billion, 2023), bought National Instruments ($8.2 billion, 2023), and bought the remainder of AspenTech in March of 2025 for $7.2 billion. Returns on invested capital have been muted by acquisitions that have added significant goodwill and leverage to the firm. We are skeptical that National Instruments fits in Emerson's automation portfolio. Emerson put its safety and productivity segment under review in November of 2024 but has seemingly chosen to retain it. In our view, the segment is noncore and would be better off being divested so that Emerson can focus on its core automation portfolio.

We assign a $104 fair value estimate for wide-moat Emerson. We value the firm at around 16 times our 2026 adjusted earnings estimate. Emerson's value is underpinned by its wide economic moat through which we believe it can outearn its cost of capital for the next 20 years.

We model mid-single-digit organic top-line growth on the heels of multiple secular trends in favor of Emerson, including the industrialization of developing nations, the growing shortage of skilled labor, and rising global regulatory standards spurring demand for automation and remote supervision. Emerson should also benefit from a number of short-term trends, such as the replacement of decrepit industrial infrastructure, the reshoring of supply chains in the US, and the unprecedented infrastructure spending being passed by the US government. We think Emerson’s top-line growth can translate into high-single-digit EPS growth through margin expansion derived from an improving product mix and mild operating leverage.

We think it’s reasonable for Emerson to realize a mid-single-digit long-term growth rate as we expect automation to continue on a path of adoption for many years to come. We see positive optionality for growth in whitespace opportunities and the development of bespoke solutions added onto Emerson’s existing product offering.

Excluding the AspenTech business segment, Emerson’s core businesses generate near-20s ROICs inclusive of goodwill. We expect Emerson’s returns to improve as the segment becomes more profitable.

We assign Emerson Electric a wide economic moat rating based on switching costs and intangible assets. Emerson’s return profile has been suppressed by recent acquisitions, but we expect returns to improve as subsidiaries like AspenTech become more profitable. Regardless, Emerson has generated returns above its cost of capital each year, including during the depths of the global financial crisis in 2009 and the covid-19 pandemic in 2020. We think the company has since grown stronger, and we believe it’s more likely than not that Emerson can continue to outearn its cost of capital over the next 20 years.

It is highly unlikely for a customer to switch industrial automation suppliers once equipment is installed. Emerson sells equipment that performs niche functions within complex processes that often face rigid regulatory requirements and operate in extreme environments. For a customer to rip out mission-critical equipment that represents a small percentage of its bill of materials, the savings from a better system would have to be greater than the sum of the upfront capital expense, costs of operational downtime, plant redesign, employee retraining, regulatory reapprovals, and the risks of integrating new equipment. Downtime alone for a large-scale manufacturing plant can cost millions of dollars per hour, stemming from wasted materials, installation costs, customer service risks, idled operators, and lost production.

Moreover, we believe incumbency is strong in the industry—customers are likely to choose the same automation provider to replace equipment at the end of its useful life. Emerson’s switching costs enable the company to benefit from decades of high-margin maintenance, repair, and overhaul, or MRO, sales as some of its equipment remains installed and serviceable within customer factories for upwards of 50 years. We estimate that MRO sales represent two-thirds of Emerson’s revenue.

Process manufacturing, the market in which Emerson generates most of its revenue, is typically designed for uninterrupted, continuous operation. The production of goods such as oil derivatives, chemicals, and drinking water involves processes that run 24/7. Halting a process can be costly because continuous processes are designed for steady-state operation, and interruptions can generate waste and interfere with product quality. Therefore, equipment reliability is a major factor in selecting a supplier; the cost of a malfunction can vastly exceed the sticker price of a piece of equipment.

We assign Emerson’s automation software portfolio a wide moat rating based on switching costs and intangible assets. Qualitatively and quantitatively, we think this is Emerson’s strongest business. Because control-level software and equipment oversee an entire plant’s automation system and integrate with multiple layers of the automation pyramid, their malfunctioning can be much more destructive than floor-level component errors. We therefore believe control-level products have heightened performance requirements and switching costs stemming from their cost of failure, complex integration, and employee training costs, and therefore tend to carry stronger moats.

DeltaV, Ovation, and AspenTech are Emerson’s flagship control-level process automation brands. They have a near-ubiquitous presence across many hybrid and process industries and boast consistently high renewal rates exceeding 95%. For example, DeltaV is installed within the operations of 24 of the top 25 pharmaceutical companies globally, Ovation controls 60% of the power generated in the United States, and AspenTech is installed in the operations of 19 of the 20 largest petroleum companies and 19 of the 20 largest chemical companies.

We assign Emerson's automation hardware portfolio a wide economic moat based on switching costs and intangible assets. The heritage of Emerson and its individual brands acts as an intangible asset that sets the company apart from younger entrants. Emerson built its floor-level component portfolio, which comprises meters, valves, gauges, regulators, seals, sensors, calibrators, and blenders, through the acquisition of premier brands such as Keystone, a 70-year-old manufacturer of butterfly valves, Micro Motion, which sells tailored flow meters, Rosemount, founded in 1956 and the inventor of the coplanar pressure transmitter, and Fisher Controls, one of the oldest and largest manufacturers of control valves within process manufacturing end markets.

We assign Emerson’s nonautomation hardware portfolio, which consists of manual equipment such as vacuums, drain cleaners, power tools, and pressure washers, a narrow moat rating based on switching costs and intangible assets. Emerson manufactures its suite of professional tools under the Greenlee, Klauke, and Ridgid brands. Greenlee was founded in 1862 by the Greenlee brothers to manufacture barrel-making machines. Its tools are well trusted by professional tradespeople for installing electrical, HVAC, and plumbing systems. Klauke and Ridgid were also founded over a century ago. Brand preference is strong in the trades industry; it is common for professionals to become well trained to use specific brands, thereby saving valuable time. We believe the training required to efficiently use other branded products represents a significant switching cost.

Lastly, we assign Emerson's test and measurement business, which houses National Instruments, a narrow moat based on intangible assets and switching costs. From our understanding, customer workflows get designed around LabView, National Instruments' flagship software, creating an aversion to switching and redesigning an entire testing process. We think NI’s solutions are somewhat unrelated to Emerson’s core business, which makes us skeptical that significant synergies can be achieved.

The simplification of Emerson’s portfolio in recent years has positioned the firm for higher growth and focused operations.

Emerson’s long-term incentive plan, partially based on free cash flow targets pegged above GDP growth, represents the majority of executive compensation and aligns management well with shareholders.

The acquisition of AspenTech filled in Emerson’s portfolio well and solidifies it as the global process automation leader.

Emerson has continued to make questionable capital allocation decisions, such as the expensive and unrelated acquisition of National Instruments.

Emerson has a narrow breadth of end markets compared with many of its peers, making the firm more prone to cyclical economic swings.

Automation as a secular tailwind is limited by long-lasting incumbent installations that prevent the fast-paced growth that investors commonly believe is inherent to the industry.