Emerson Fortifies Oil & Gas Foothold With Paradigm Buyout

Emerson Electric Co. EMR recently acquired Paradigm, a dominant provider of software solutions to the oil and gas industry, for $510 million. Paradigm, when combined with Emerson’s Roxar software business, will enable Emerson to offer a best-in-class, end-to-end Exploration & Production (E&P) software portfolio offering.

The acquisition will serve to deepen Emerson’s foothold in the upstream oil and gas market, as Paradigm adds a series of subsurface software tools to Emerson’s growing Automation Solutions portfolio.

Emerson’s offerings will now range from seismic processing and interpretation to production modeling, thus elevating the company’s position as a strategic partner for both subsurface software, and surface systems and solutions to Oil & Gas industry. The technology that Paradigm’s offerings will bring will assist Emerson to improve efficiency, reduce costs and improve return on investment for oil and gas operators.

Emerson has outperformed the industry over the past six months, having appreciated 11% compared to the industry’s gain of 3.9%.

 

Emerson has been executing restructuring activities since 2015 to drive efficiency and growth. In fact, Emerson has slashed almost a third of the company’s sales during its two-year restructuring process. To maintain its scale of operations, the company has been making smaller, bolt-on acquisitions, including a $3.15-billion acquisition of Pentair’s valves and controls business in April.

Emerson intends to spend between $500 million and $1.5 billion on bolt-on acquisitions over the next couple of years. This year’s outlay for the same came at about $1.5 million. In fact, the company is about to wrap up another acquisition worth more than $200 million in the commercial residential solutions area, in the coming 30-40 days.

Till last week, Emerson was pursuing a takeover bid for automation products manufacturer Rockwell Automation Inc. ROK. Emerson withdrew its third takeover bid after its offer was spurned once again by Rockwell last week. We believe it was prudent of Emerson to abandon its suit. In fact, Emerson’s shares had risen 2.5% in the aftermath of the rejection, as investors’ concerns about an expensive deal that would overstretch the company’s finances eased.

As this Zacks Rank #3 (Hold) company moves away from its Rockwell proposal, it’s still eyeingbolt-on type acquisitions that will strengthen its operating platforms.

Stocks to Consider

Better-ranked stocks in the broader space include Terex Corporation TEX and Caterpillar, Inc. CAT, both sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex generated four outstanding beats over the trailing four quarters, for an outstanding average positive surprise of 135.9%.

Caterpillar has a striking earnings surprise history for the same time frame, having beaten estimates all through for an average beat of 53.1%.

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