Eaton (NYSE:ETN) has been one of my favorite industrials for a while now, and it hasn’t disappointed. Up almost 20% since my last update, the shares have continued to outperform the broader industrial space, with even bigger positive performance gaps on a year-to-date, one-year, and two-year comparison. Simply put, the Street loves how management has used M&A to refine the business mix, while also positioning the company for some attractive long-term growth opportunities in multiple industries and further operating leverage.
I don’t think Eaton is cheap anymore, but then the list of quality industrials that are is very short. About the best that I can do is stay that a 2-point premium to the larger multi-industrial group on ’22 EV/EBITDA (around 17x versus 15x) doesn’t seem unreasonable for a company with attractive long-term growth opportunities. Right now I’m torn between the less attractive long-term prospective returns at this valuation and the “don’t get off a winner” lessons I’ve learned in the past; at best I’d approach Eaton with some caution if I were considering a new investment, even though this is still one of my favorite long-term stories.
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Eaton Offers Broad Exposure To Recovery And Acyclical Growth Stories
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