JPMorgan expects Emerson (EMR) update on NI (NATI) bid in early May

JPMorgan analyst C. Stephen Tusa Jr. weighed in on Emerson (NYSE: EMR) after looking at scenarios for a potential NI (NASDAQ: NATI) takeover. Tusa notes that both management and investors expect an update prior to early May from NATI about EMR’s acquisition proposal for $53/share.

"We believe a NATI update should come before EMR’s FQ2’23 earnings, expected on May 4th, and our Equity Derivatives Strategy Team (Richard Fang) provides an attractive risk-reward options implementation heading into the update," Tusa commented.

The analyst said EMR's stock fairly valued at about 19x FY2 EPS, which reflects a nominal premium to the sector. "However, the EPS does not reflect the material balance sheet potential, which we estimate to be about ~25% of the market cap or the premium AZPN holdings, which makes the implied multiple cheaper," Tusa commented. "On its core performance, EMR should be solid over the next few years, given late-cycle oil and gas exposure, with orders trending MSD versus the sector, which is showing down orders. Operating leverage is about average at 35%. Fundamentals are on net positive but the valuation is about fair."

In a bull case, the EMR stock could be valued would be about $5.50 in EPS at 17.5x or $95. In a bear case, the multiple is actually expensive given earnings risks and there is downside risk

Discussing option strategy into the EPS event and likely update on NI, the firm's options strategists Feng recommends buying an EMR May 12th $91/$96 strike call spread, indicatively paying $0.85 (1.0% premium vs $83.30 ref price).

The firm reiterated a Neutral rating and $80.00 price target on EMR.

For an analyst ratings summary and ratings history on Emerson click here. For more ratings news on Emerson click here.

Shares of Emerson closed at $83.30 yesterday.

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