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Eaton Sees Growth in 2012, Led by U.S. Demand

By    |   Thursday, 03 May 2012 04:33 PM

Eaton (ETN) participates in a wide variety of industrial operations, including automotive and aerospace. While those sectors took a hit with the global slowdown, management sees growth in 2012, led by U.S. demand.

Eaton is a maker of electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety.

Eaton has approximately 73,000 employees in more than 50 countries and sells products to customers in more than 150 countries.

The company has been on the M&A trail of late, buying manufacturers in the United States, Canada, Germany, Africa, China and Colombia during 2011. In February 2012 it agreed to buy Polimer Kaucuk Sanayi ve Pazarlama, a Turkish manufacturer of hydraulic and industrial hose.

A large supplier to truck and automakers, Eaton reports its backlog month-to-month as the industry reports. As of the end of 2011, the backlog stood at $3.8 billion. Eaton has invested $2 billion into R&D over the past five years, management reports.

“During 2009, Eaton experienced significant challenges due to the global recession and instability in the financial and capital markets, which had a significant impact on the demand for Eaton’s products,” management told investors in a recent filing.

“In response to these events, and to remain competitive in the marketplace, substantial changes were made to the company’s cost structure, including a 17 percent full-time workforce reduction in 2009, as well as other cost-containment actions.”

Growth rebounded in 2010 and 2011, although Europe and China slowed, management notes. “For 2012, the company expects modest growth of 5 percent, with United States markets slightly stronger than markets outside of the United States,” they said.

Eaton has a market cap of $16.03 billion in a sector, machinery, where the average company size is $7.23 billion. Its trailing 12-month P/E ratio is 11.85 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.33, compared to 1.54 for the sector.

Its projected earnings per share growth for the coming year is 14.13 percent, lower than the sector average at 15.48 percent.


Wall Street is broadly bullish on Eaton’s prospects. Buy ratings come from Citigroup Investment Research, Stifel Nicolaus, Longbow, and Jeffries, with the remainder in neutral and just one sell call, from Market Edge.

Standard & Poor’s Equity Research has the stock at neutral.

“We recently downgraded our opinion on ETN shares to hold, from buy, based on our view that global markets will remain challenging due in part to sovereign debt issues in Europe. Our valuation metrics also suggest that the shares are fairly valued,” S&P analysts wrote recently.

Eaton next reports on July 23.

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Thursday, 03 May 2012 04:33 PM
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