Morgan Stanley sees a turnaround for this electrical equipment maker

Published Tue, Mar 21 20237:09 AM EDT

Emerson Electric is worth buying while investors await clarity on an acquisition plan and how the Inflation Reduction Act will impact business, Morgan Stanley said. Analyst Josh Pokrzywinski upgraded the manufacturing stock to overweight from equal weight and raised his price target by $1 to $96. Pokrzywinski's new price target implies an upside of 16.7% from where the stock ended Monday's session. Pokrzywinski said the company has some of the best risk-reward potential within his coverage universe when using Morgan Stanley's new new risk-adjusted return framework. "EMR is among the higher risk-adjusted risk/reward names in our coverage lacking material non-resi exposure," he said in a note to clients Tuesday. The stock has underperformed the broader market since the bid for National Instruments in January. The offer of $53 per share represented a 32% premium over National Instruments' Jan. 12 closing price. It also represents what Emerson called an improvement over its initial offer of $48 per share in May. Pokrzywinski said the resolution of a likely approval of the bid close to its original offer, with walking away as an alternative, is a "win-win." The company will either establish its dominance by making the purchase, he said, or show its discipline by walking away if the costs gets too great. The potential acquisition comes amid expectations for orders to accelerate as peers see either a deceleration or a straight decline, Pokrzywinski said. There's also the possibility for orders with more clarification on the limits of the Inflation Reduction Act in the coming months. He said hydrogen and liquified natural gas business opportunities can provide a 2% bump to the company's compound annual growth in revenue through 2030. But there may not be much signs of change in the short-term, with the 2024 consensus revenue growth outlook similar to the company's average growth over the last 10 years. Emerson had some of its highest backlog growth last quarter, which Pokrzywinski tied to the business cycle. Despite the focus on new business models, which require money to build, he said the change in capital expenditures pose no real risk to its ability to meet consensus expectations. Year to date, Emerson shares are down 14.4%, while the S & P 500 is up nearly 3%. — CNBC's Michael Bloom contributed to this report.