Despite a good overall run in the industrial space, Eaton (NYSE:ETN) hasn't really kept pace, as the shares have actually lagged the S&P 500 over the past year, not to mention peers like Parker-Hannifin (NYSE:PH), Honeywell (NYSE:HON), and Schneider (OTCPK:SBGSY) (Emerson (NYSE:EMR)
has more or less traveled in step with Eaton). Eaton management has
been relatively less upbeat than some in its peer group, and the
company's organic growth has trailed its peer group for a while now.
Eaton's
above average cyclicality is an “is what it is” sort of thing, and I
don't believe management is likely to undertake a major restructuring
that would see it sell or spin off an entire vertical. Likewise, I don't
like large-scale M&A is especially likely. Although the company
should be in place to benefit from several improving end-markets,
weakness in commercial construction and passenger vehicles is a concern,
as well as uncertainty regarding U.S. tax and trade policy. Eaton
shares look like a rare undervalued option in the industrial space
(assuming 6% long-term FCF growth), but the lagging revenue growth could
be a headwind for a while longer.
Read more here:
Eaton Offers An Interesting Valuation, But A Lot Of Uncertainties
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