Bank Of America's Bearish Stance On Eaton No Longer Applies

Eaton Corporation, PLC Ordinary Shares ETN on March 2 hosted its annual investor conference in which management did a "solid job" of outlining its plan, according to Bank of America.

The Analyst

Bank of America's Andrew Obin upgraded Eaton's stock from Underperform to Neutral with a price target raised from $80 to $85.

The Thesis

Eaton's management team presented to the investment community its longer-term growth strategy for its Industrial and Electric segments, Obin said in a note. One of the key takeaways is that the company faces an attractive opportunity in vehicle electrification and the evolving electric infrastructure. The recent inflection in electrical orders and management's restructuring programs helps give a better visibility to management's margins guidance.

Eaton's 2020 earnings per share target of around $6.45 could be achieved through a 3 to 4 percent organic top-line growth rate, 1 to 3 percent growth from M&A, the analyst said. The company does face some commodity risks to its margins, but a strong growth in its key end markets should be sufficient to more than offset any headwind.

A bullish stance may not be appropriate at this time, Obin said, as the company's EPS guidance implies it will grow earnings in-line with its peers but with below-average margin. Nevertheless, a premium dividend yield of around 3.5 percent should provide a floor to the stock. As such, the stock appears to be "appropriately priced" at current levels.

Price Action

Shares of Eaton were trading lower by 0.25 percent at $80.84.

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