Emerson Electric Co (EMR) Valuation

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Company Profile (obtained from Google Finance): Emerson Electric Co. (Emerson) is a global technology company. The Company is engaged in designing, designing and supplying product technology and delivering engineering services in a range of industrial, commercial and consumer markets globally. The Company operates in five business segments: Process Management, providing measurement, control and diagnostic capabilities for automated industrial processes producing items, such as foods, fuels, medicines and power; Industrial Automation, bringing integrated manufacturing solutions to industries globally; Network Power, providing power and environmental conditioning to telecommunication systems, data networks and critical business applications; Climate Technologies, enhancing household and commercial comfort, as well as food safety and energy efficiency through air-conditioning and refrigeration technology, and Appliance and Tools, providing designed motors for a range of applications, appliances and integrated appliance solutions.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 4/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last updated 10/17/09
• MG Value = $73
• MG Opinion = Undervalued
• Value based on 3% Growth = $36
• Value based on 0% Growth = $21
• Market-implied growth rate = 3.67%
• Net Current Asset Value (NCAV) = -$5.25
• PEmg = 15.84
• Current Ratio = 1.55
• Price to Book Ratio = 3.39

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $7,718,000,000
• Current Liabilities    $4,993,000,000
• Total Debt    $4,464,000,000
• Total Assets    $20,324,000,000
• Intangible Assets    $1,148,000,000
• Goodwill    $6,976,000,000
• Total Liabilities    $11,664,000,000
• Outstanding Shares    751,500,000

Earnings Per Share – Diluted

• 2009 (estimate)    $2.10
• 2008    $3.11
• 2007    $2.65
• 2006    $2.23
• 2005    $1.70
• 2004    $1.49
• 2003    $1.20
• 2002    $1.28
• 2001    $1.22
• 2000    $1.65
• 1999    $1.50

Earnings Per Share – Modern Graham

• 2009 (estimate)    $2.47
• 2008    $2.52
• 2007    $2.10
• 2006    $1.74
• 2005    $1.46
• 2004    $1.35

Valuation History:

• 10/17/09 – Value $73, Actual Price $39.12, Undervalued & Enterprising
• 7/8/09 – Value $73, Actual Price $30.77, Undervalued & Defensive