Eaton Corporation (ETN) has been cashing in on the global
recovery. The Zacks #2 Rank (buy) is expected to see double digit
earnings growth in 2011 and 2012. It also has very attractive
valuations with a forward P/E of just 12.6.
Eaton is a diversified industrial manufacturer of
products in the Electrical, Hydraulics, Aerospace and Vehicles
sectors.
It's involved in power distribution and power
control products including circuit breakers, meters, relays and
inverters. The company's hydraulic systems are used in aerospace,
agriculture, construction, machine tools and the oil and gas
industries.
The company also makes powertrain systems for the
commercial market as well as clutches, and manual and automatic
transmissions, valves, cylinder heads, spoilers and fluid
connectors.
Eaton Beats Again In the First Quarter
Very few companies have the track record that Eaton
does on earnings surprises.
In the last 5 years, Eaton has only missed the
estimate ONE time. It has scored 14 consecutive earnings surprises
in a row.
![](http://www.zacks.com/images/upload_dir/1307041450.jpg)
What is even more impressive about this record is
that it includes, of course, one of the worst recessions in the
last 70 years.
On Apr 20, the company reported its first quarter
results which had it surprising by 5%. Earnings per share were 84
cents compared to the consensus of 80 cents.
That is a 75% increase over last year when EPS was
just 48 cents.
Sales Soar in Q1
Sales rose 23% to $3.8 billion from $3.1 billion
last year. Sales growth consisted of 19% organic growth, 2% from
acquisitions and 2% from higher foreign exchange rates.
Sales were boosted by the Electrical Americas,
Hydraulics and Truck markets which grew 20%, 40% and 27%,
respectively. The Hydraulics segment saw record quarterly bookings,
which rose 39% compared to last year.
The company raised its full year estimate on
hydraulic sales to growth of 18% from its prior projection of
16%.
Raised Full Year Guidance
Given the strong first quarter, not surprisingly,
Eaton raised its full year guidance by 15 cents to between $3.66
and $3.96 per share.
The analysts followed suit, with the 2011 Zacks
Consensus jumping to $3.90 from $3.76 since the earnings
report.
That is earnings growth of 39% compared to the
$2.81 the company made in 2010.
Analysts are also bullish on 2012, with the Zacks
Consensus Estimate rising 16 cents to $4.60 per share in the prior
60 days.
That is future earnings growth of 18%.
Eaton Rewards Shareholders
Eaton has paid a dividend to shareholders since
1985.
Unlike other companies during the Great Recession,
Eaton did not cut its dividend. Currently, the yield is 2.6%.
Eaton Has Solid Value Fundamentals
In addition to an attractive P/E under 15, Eaton
has a price-to-book ratio of 2.1.
That is well within the value parameters, which is
under 3.0, but it's also cheaper than its peers at 2.6.
Eaton also has a good 1-year return on equity (ROE)
of 14.9%.
Eaton may be a 100-year old company, but it has an
impressive record of surprising on the estimate and is expected to
grow earnings in the double digits over the next 2 years.
With a P/E well under the S&P 500's average, an
investor is getting a good combination of growth and value.
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Tracey Ryniec is the Value Stock Strategist for
Zacks.com. She is also the Editor of the Turnaround Trader and
Insider Trader services. You can follow her at
twitter.com/traceyryniec.
EATON CORP (ETN): Free Stock Analysis Report
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