Tuesday, May 10, 2022

An International Equity holding: Eaton Corp. Plc (ETN, $145.71): “The (electrical) Power of Eaton” By: Zach Turbett, AIM Student at Marquette University

Eaton Corp. Plc (ETN, $145.71): “The (electrical) Power of Eaton”

By: Zach Turbett, AIM Student at Marquette University

Disclosure: The AIM International Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


  • Eaton Corp. Plc  (NYSE:ETN) provides energy-efficient solutions for electrical, hydraulic, and mechanical power. The company operates in four different segments: Electrical Americas and Electrical Global, Aerospace, Vehicle, and eMobility. Eaton operates internationally with the majority of sales based in the United States.
  • With the sale of Eaton’s hydraulic business, it has allowed the company to continue to heighten and expand in their current segments.
  • In Q1 of 2022, Eaton acquired Royal Power Solutions for $600 million. Royal Power Solutions is a manufacturer of electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets.
  • The company announced the addition of two key executives which will go into effect July 5th, 2022. Heath Monesmitch will be named President and Chief Operating Officer of the Electrical Sector where he will be responsible for the EMEA region. Additionally, Paulo Ruiz will be the President and Chief Operating Officer of the Industrial Sector. Both additions will add great value to the company in the future.
  • Eaton has experienced substantial financial growth in a challenging environment in Fiscal 2021 in relation to the Covid-19 pandemic, inflation, and supply chain constraints.

Key points: Late last year, Eaton completed the sale of its hydraulic business to Danfoss (a danish industrial company) for $3.3 billion. The hydraulic business was seen as a large but slower-growth, lower margin business than the rest of the company. With the sale of the hydraulic business, it marks as another milestone for the company’s transformation into a higher growth company. Additionally, this sale will provide great value for its shareholders as it earns higher returns.

Eaton completed a very recent acquisition of Royal Power Solutions which will synergize well with its already existing electrical segment. With Eaton’s continued commitment to improve quality of life through power management technologies, this will allow the company to excel. Also, this acquisition will give them the ability to capitalize on their fast-growing eMobility, Aerospace, and electrical businesses.

In the past year, the world has experienced major setbacks due to the pandemic, supply chain constraints, and rising inflation. Throughout this period, ETN has continued to show financial strength. For FY 21’, sales were up $19.6 billion dollars, representing 10% organic growth. In fact, all segment margins were up 18.9% which was an all-time record for the company. Additionally, the company continued to reinvest in the already growing company with $575 million going towards Capex and $616 million towards R&D activities. Lastly, Eaton returned $1.2 billion to their investors through dividends, and through this same period, their share price grew 44%.

What has the stock done lately?

As of late, the stock has seen increased volatility since the beginning of this year. At the beginning of this year, ETN’s share price was $170.56, and today it sits at $145.71, representing a decrease of 14.5%. This decline in price is partly due to the current geo-political tension between Russia and Ukraine, and ongoing supply chain constraints.

Past Year Performance:

ETN’s 52-week range stretches from $139.12-175.72, with its low trailing back to mid-June of last year. Today, the share price is hovering very close to its price of that a year ago. In August of 2021, ETN saw a slight dip from $168.84 to $148.39 due to the CEO’s press conferencing speaking on the supply chain issues. He explained that the company will have challenges when respect to their revenue. However, the share price quickly bounced back in the following months hitting its all-time high. The company will be releasing its Q1 2022 earnings on May 3rd.

1 Year Stock Chart vs. Benchmark from FactSet here

Source: FactSet

My Takeaway

ETN was added to the portfolio at the end of 2018 and has seen extraordinary growth since then. Although the company has seen many macro-economic challenges, ETN has stayed strong and has continued to push forward. Also the company has continued to be a pioneer in power solutions with its high M&A activity, key customer wins, and many development programs. Moreover, ETN is joined Bill Gates’ Breakthrough Energy Ventures and the UK-based Business Growth Fund in providing venture capital support to Reactive Technologies. The company still faces headwinds with the ongoing supply chain crisis in which they will need to effectively manage. With the company’s strong performance prior to the war between Russia and Ukraine, there is no doubt that Eaton will be a strong performer in the industry and compared to its peers.

1 Month Stock Chart from FactSet here

Source: FactSet