Electrical Equipment Companies' Earnings to Watch
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Several electrical equipment providers are scheduled to post earnings in late July/early August, including industry stalwart Emerson Electric on Aug. 6. Most are expected to post better year-over-year results, while all are probably on track for improved performances in 2013.
This may be the chance to jump onto a group with favorable prospects. Indeed, some of the stocks have lagged the market and could be strong gainers for the near-term or long haul.
I will provide an overview of each company, along with recent developments, and the likely earnings numbers for the June quarter. Finally, advice on the shares may help investors with their portfolios.
Global giant remaining steady
Emerson Electric (NYSE: EMR) operates across five segments, with 2012 revenue in excess of $24 billion. Last year's earnings were $3.39 a share. The company has a sound balance sheet, as does most of the broader electrical products industry. Its long-term debt to equity ratio is about 39%, and its current ratio is 1.50. The liquidity should allow Emerson to expand further through acquisitions.
In 2012, for instance, it bought out four companies for a total of $187 million. The newly purchased businesses may contribute more than the $115 million in revenue going forward.
June-quarter earnings will likely be around $1.00, according to analysts, as compared with $1.04 in 2012. It has been achieving high-single-digit sales gains from its largest segment, Process Management, that serves the global oil and gas, chemical, and power industries. Its remaining divisions consist of Industrial Automation, Network Power, and Climate Technologies.
Emerson has profitability ratios that are more than industry norms. It also is a top-notch performer in terms of return on assets and return on investment. All told, it is a good holding for more conservative buy and hold investors.
Technology-related businesses driving growth
Cable and networking products company, Belden (NYSE: BDC) is achieving rapid sales growth, as it serves broadcast, enterprise, and industrial customers. For reference, a 15% March-quarter sales increase allowed earnings to climb to $0.49 per share from $0.42 in the prior year. The order backlog, at about $202 million at the end of 2012, up from $129 million at year-end 2011, is notable, and most of the increase will be realized this year.
Second-quarter share earnings likely increased to around $0.94, representing a $0.08 jump year over year. Its Broadcast Solutions unit is benefiting greatly from last year's acquisitions of two broadband-focused companies. For more details on the company's outlook for 2013, see my February blog, "Growing Electrical Component Firms."
Belden is a growth company at present, as strong profit gains this year and the next should be fueled by investments in technology units while it sells off traditional cable wire operations (in 2012 it divested Thermax and Raydex). The shares may well provide upside from their current quote. Their forward P/E ratio is 13.9, and disregarding a change in guidance when earnings are reported on Aug. 8, this is based on 2013 and 2014 projected earnings of $3.63 and $4.10, respectively.
Also benefiting from consolidation
Applied Industrial Technologies (NYSE: AIT) manufactures a range of products for industrial and fluid power, as well as mechanical, fabricated rubber, and fluid power shop services industries. Its most favorable aspect is a clean balance sheet, marked by strong liquidity (current ratio is 2.9) and no debt. Acquisitions of smaller distributors are helping earnings.
June-quarter earnings will probably be reported at about $0.76 according to analysts, as compared with $0.75 last year. Gains are stemming from its Service Center Based Distribution segment that contributes more than 80% of total sales. The remainder of sales are derived from its Fluid Power Businesses division.
I like Applied Industrial shares in light of their positive earnings momentum. The shares are trading at a forward P/E ratio of 16.5, based on 2013 and 2014 projected earnings of $3.80 and $4.10, respectively.
What to watch for
Electrical Equipment firms are building their asset bases through buyouts at this time. The best are also expanding into emerging products and geographical markets. The shares of many have climbed, though some, like Emerson and Belden, continue to be priced at reasonable valuations.
Emerson is a good long-term holding for a wide range of investors. Belden has near-term growth potential, and is for a more aggressive portfolio, as the stock's beta is 1.99. Lastly, Applied may be for either near- or long-term investors as it invests in new operations, and offsets inherent cyclicality in the electrical equipment market.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Emerson Electric Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!