EMERSON ELECTRIC CO (EMR) stock intrinsic value fair value estimate & owner earnings analysis

Emerson makes and services automation equipment and software for industrial plants. Intelligent Devices (valves, measurement and discrete automation, $12.4 billion of fiscal 2025 sales) is the larger segment; Software and Control (control systems, AspenTech industrial software and the National Instruments test and measurement business, $5.7 billion) is the other. About 59% of sales are outside the United States. Order backlog was $8.6 billion at September 30, 2025, with about 75% expected to become revenue within 12 months. How we measured earnings. We take the cash the business generates from continuing operations, remove swings in working capital, and deduct stock-based pay and the capital spending needed just to keep the business running (spending to grow is not charged). We leave out the one-time income taxes paid on the sales of Copeland and InSinkErator ($2.3 billion in fiscal 2023, $0.6 billion in fiscal 2025), which are not part of the ongoing business. On this basis earnings per share were $3.96 in fiscal 2023, $4.98 in 2024 and $5.30 in 2025. Adding back cash interest ($221 million in 2025) shows what the business earns before paying its lenders: $5.69 per share in 2025, up 7.2% from $5.31 in 2024. We anchor on the midpoint of 2024 and 2025, $5.50, because those are the years that include the National Instruments acquisition (October 2023) and follow the sale of Copeland. Fiscal 2023 is excluded because it predates National Instruments and includes about $141 million of interest earned on the undeployed Copeland proceeds; earlier years describe a company that still owned Copeland. A recurring operating cash outflow labelled Other, net ($276 million, $400 million and $429 million in 2025, 2024 and 2023) is not itemised in the filing; we left it in as a real cost. Near-term growth. Last year's growth in pre-interest cash earnings was 7.2%. For fiscal 2026 the base case assumes 12%, a level of $6.16. The dated reason is the June 2026 quarterly report: for nine months net earnings were $1,941 million versus $1,657 million (up 17%) and operating cash flow before working capital was about $3,222 million versus $2,744 million (up 17%), on sales up only 4.7%. We start well below what those nine months imply because a single strong year is not yet proof of a new level. As a check on the case, we tested the debt as well: 2025 cash interest of $221 million compares with about $3.2 billion of pre-interest cash earnings. What we credit. After 2026 the base case grows 2% a year for ten years and is flat afterward. The 2% is under the roughly 2.5% price increases Emerson realised in fiscal 2025 and is supported by the backlog and by the installed base of control systems, valves and software that must be serviced and replaced. We do not credit volume growth, share gains, power and semiconductor demand, AspenTech expansion or margin gains; none is contracted. Emerson has paid for large acquisitions (National Instruments, AspenTech), and acquired-intangible amortisation is large (National Instruments alone $425 million in fiscal 2025). That amortisation is added back because the cash was spent years ago, so we keep growth modest and let the bear case carry the risk that acquired earnings fade. Debt. Borrowings were $13.1 billion at June 30, 2026 (about $5.6 billion due within a year, mostly commercial paper plus $750 million of 0.875% notes due October 2026), against $2.2 billion of cash. Most bonds carry coupons of 0.875% to 3.5% (for example $1 billion of 2.00% notes due December 2028, $1 billion of 2.20% due December 2031 and $1 billion of 2.80% due December 2051), well below 6%, which we value at about $1.3 billion less than face. Net debt used is about $9.7 billion, or $17.25 per share, in every case. Base case: the business is worth about $120.0 per share ($67.4 billion), it owes $17.25 per share, leaving $102.8. Bear case: a downturn in industrial spending like fiscal 2016 and fiscal 2020 (revenue down about 11% and 9%), plus weakness already visible in Discrete Automation (sales down 5% in fiscal 2024) and China (underlying sales down 4% in fiscal 2025). Pre-interest cash earnings fall to $4.68 per share for two years, then settle 10% below the anchor at $4.95 permanently, as acquired earnings fade. The business is worth about $82.0 per share ($46.0 billion), it owes $17.25, leaving $64.8. Even here, pre-interest cash earnings of about $2.6 billion cover interest many times over, and no maturity is a threat. Bull case: the fiscal 2026 run rate largely holds ($6.50 per share) and grows 3.5% a year for ten years, below the 6% and 3% underlying sales growth of fiscal 2024 and 2025, then stays flat. The business is worth about $142.5 per share ($79.9 billion), it owes $17.25, leaving $125.2. What has changed since our August 2026 view (bear $18, base $41, bull $68): mostly our method, not new events. We now value the business before its lenders at a 6% discount rate, subtract debt separately (net debt is essentially unchanged at about $10.9 billion before the credit for low-coupon bonds) and measure earnings on continuing operations, which removes the Copeland tax payments that depressed reported cash flow. The nine-month results modestly raised the starting level. What would make this wrong: a multi-year fall in industrial capital spending, deeper weakness in China or Discrete Automation, AspenTech contract renewals that slow, or further large acquisitions that add debt without adding cash earnings. Because the shares are exposed to the industrial cycle and carry about $10 billion of net borrowings, the margin-of-safety price sits at a substantial discount to the base case, close to the bear case value.