Eaton Continues To Shift To A Steadier, Higher-Growth, Higher-Margin Model

For a stock that many sell-side analysts have described as “controversial” or “a battleground”, Eaton (ETN) has continued to perform well. I’ve liked this stock for a while now, and it continues to outperform – up another 10% from my last article (beating its peer group by around 6%) and up closer to 30% over the last year (beating its peers by more than 10%). Now with the company announcing the sale of its Hydraulics business, there’s not much argument left that management is attuned to the need to craft a new model that is less cyclical, higher margin, and with stronger long-term growth potential.

Selling the Hydraulics business will boost margins and returns on assets and invested capital, and the share price move after the announcement was almost spot-on with what my margin/return-driven EV/EBITDA model says should have happened. Now the questions for Eaton are more about the health of its underlying end-markets in 2020 and what businesses management may target for further M&A.

Read more here:
Eaton Continues To Shift To A Steadier, Higher-Growth, Higher-Margin Model