Emerson Electric Co. EMR intends to strengthen and expand its business through mergers and acquisitions. Emerson’s latest agreement to combine its industrial software business with Aspen Technology, Inc. AZPN in a roughly $11 billion deal is testament to that.
Based in Bedford, MA, Aspen Technology, Inc. provides asset optimization software solutions to various industries. The company’s solutions help optimize process manufacturing by supporting real-time decision making, predicting equipment failures, and providing the ability to predict and simulate potential actions.
Emerson’s stock price was down 0.9% over the past five trading sessions, finally closing at $95.73 on Friday.
In the headlines
The agreement will involve Emerson merging its software businesses, OSI Inc. and geological simulation software, with Aspen Technology to form a new company – new AspenTech. Under the cash and stock agreement, Aspen Technology shareholders will be entitled to receive $87 in cash and 0.42 shares of the combined entity in exchange for each share they own. Following the deal, which is expected to be finalized in the second quarter of 2022, Emerson shareholders will own 55% of the combined entity, while the remaining 45% will be owned by Aspen Technology shareholders.
Complemented by Emerson’s strong software capabilities, the new AspenTech will focus on providing end-to-end software solutions to its customers, helping them improve reliability, safety and production and reduce emissions. New AspenTech is expected to generate pro forma revenues of $1.1 billion in fiscal year 2022 (ending June 2022) and $490 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
The transaction will allow Emerson to gain control of a leader in high-value industrial software, accelerate its software strategy and realize substantial synergies, thereby generating value for its shareholders. With this majority stake in the new AspenTech, Emerson hopes to achieve the flexibility and platform to strategically deploy capital for growth through investments and acquisitions. Emerson believes the transaction will create a win-win scenario for both companies as it strengthens the business alliance between them and enhances their partnership in the areas of sharing technology, driving innovation and developing new products. .
As noted, the deal is likely to generate $45 million in EBITDA synergies for Emerson and be accretive to its adjusted earnings after the first year.
Emerson also reaffirmed its earnings and underlying sales outlook for fiscal 2021 (ended September 2021, results are pending). The company expects underlying sales to grow in the range of 5-6% year-over-year, while adjusted earnings per share are expected to be between $4.06 and $4.06. $08.
The company is expected to release its fourth quarter fiscal 2021 results on Nov. 3, before the market opens.
Zacks Ranking, Price Performance and Estimates Trend
Emerson, with a market cap of $57.2 billion, currently holds a Zacks rank #3 (Hold). In the coming quarters, it is poised to benefit from the strength of its medical, life sciences, food and beverage, and residential end markets. High restructuring expenses and the level of debt are major concerns for the company.
Over the past six months, Emerson shares have gained 4.3% against industry growth of 3.6%.
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The Zacks consensus estimate for the company’s earnings is set at $4.08 for fiscal 2021 and $4.57 for fiscal 2022 (ending September 2022), reflecting growth of 0, 2% and 1.6%, respectively, compared to figures 60 days ago.
Actions to consider
Some top-ranked stocks in the Zacks Industrial Products sector are Albany International Corp. AIN and Brady Company BRC. Both of these companies currently carry a Zacks rank #2 (buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Albany has delivered a 45.47% earnings surprise, on average, over the past four quarters.
Brady has delivered a 2.49% earnings surprise, on average, over the past four quarters.
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Emerson Electric Co. (EMR): Free Inventory Analysis Report
Aspen Technology, Inc. (AZPN): Free Stock Analysis Report
Brady Corporation (BRC): Free Stock Analysis Report
Albany International Corporation (AIN): Free Stock Analysis Report
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