JPMorgan Upgrades Eaton

In a report published Tuesday, JPMorgan upgraded the rating on

from Neutral to Overweight, while raising the price target from $70 to $84. There is continued expansion in non-residential construction, despite a massive decline in Power, which is the largest category. Power represents about 22 percent of the total non-residential spend. A 20 percent decline in Power spending can be offset by 5 percent growth in all other non-residential sectors. In March, total non-residential spending rose 9 percent y/y, while Power spending declined 16 percent y/y. This implies that all other non-residential categories grew 19 percent, "more than offsetting the significant decline in Power activity, an important catalyst for ETN," the analysts explained. Private non-residential sector spending is estimated at $354B, which is larger "and therefore more important than" private residential, for the first time since October 2012. In the report JPMorgan noted, "When management pays off ~$1B of long-term debt in the near term it could then have close to $3B capacity for either acquisitions or share repurchases (taking net debt/total capital to ~40%). If it acquired $3B of its own shares that would represent close to 10% of its outstanding shares (at its current stock price). Acquisitions of smaller bolt-on electrical product lines would also be welcomed by investors, in our view." Eaton has ~25 percent of its revenues leveraged to the private non-residential sector. Moreover, given its capital allocation options later in the year and a "compelling valuation," the analysts believe that "investors should accumulate a position in the stock."