Why Emerson Electric’s 25% Jump in 2017 Signals the Beginning of a Bull Run

What happened

2017 was a wild ride for investors in Emerson Electric (NYSE: EMR). The stock wore a somber look until the second half of the year, when investors got a whiff of the kind of exponential growth the company wass eyeing when it bid for Rockwell Automation (NYSE: ROK) and announced a great outlook for fiscal 2018. Emerson shares zoomed nearly 17% between mid-November and December to cap 2017 with solid 25% gains, which was unthinkable some months earlier.

So what

Just when investors appeared to be losing patience with Emerson's lackluster sales, the company sprung a surprise with a strong set of third-quarter numbers and an outlook upgrade for the full year. The automation and commercial and residential solutions (primarily heating, ventilation, and air conditioning products) company was witnessing growth in each of its business segments as strong sales in key geographic regions like China boosted its top line even as it unlocked value from its Pentair acquisition.

That Q3 wasn't a one-off good quarter was confirmed when Emerson reported 5% growth in revenue for the full year in November, confirming that the company is back on the growth track. In between, Emerson put speculation to rest and confirmed that it made an offer to Rockwell Automation, which the latter rejected. Mid-November, Emerson put up a $29 billion offer for Rockwell, complete with a detailed presentation outlining the rationale behind its proposed deal.

Emerson believed the combined company would create a "global automation leader" with the potential to grow its earnings per share (EPS) at double-digit percentages and the power to exploit opportunities in an industry touted to be worth $202 billion. Rockwell didn't budge, forcing Emerson to finally give up its quest -- a move that won investors' approval as they shifted focus to the company's organic growth potential.

Now what

As I explained in a recent article, Emerson Electric looks poised for tremendous growth in 2018 for two reasons: earnings growth and a potential acquisition. Emerson expects its sales and earnings per share to grow 8% to 10% and 5% to 13%, respectively, in FY 2018, backed by organic as well as acquisitive growth.

As for deals, I certainly don't expect Emerson to sit on its hands after its failed Rockwell bid. Emerson is flush with cash, which it'll likely put to good use in 2018 on acquisitions and mergers. Altogether, I expect 2018 to be another strong year for Emerson stock.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Emerson Electric. The Motley Fool has a disclosure policy.