EUR 850.00 For Business Accounts Only

Morningstar | Eaton 2018 3Q Update

The $12 billion acquisition of Cooper Industries in 2012 brought Eaton a comprehensive global power management portfolio. The deal positively transformed Eaton’s electrical business as Cooper’s product catalog expanded Eaton’s reach upstream to utilities, as well as downstream to end users of lighting fixtures. Legacy Eaton Electrical mainly focused on the midstream through power quality, switchgears, and distribution products. Electrical represents about 60% of Eaton’s sales and profits, split between two segments that sell equipment and project-related services.Lighting fixtures alone represent about $2 billion of sales, a business that will grow alongside the adoption of energy efficient standards that favor light-emitting diodes. Eaton doesn’t manufacture LEDs, but Cooper’s lighting design catalog sets it apart from other electrical infrastructure companies, encouraging strong relationships with architects, designers, and distributors due to Eaton’s one-stop shop solutions that include power transmission to luminaires. We believe this helps Eaton as it bids for both new construction and retrofit electrical infrastructure and lighting projects. Furthermore, increased research and development, manufacturing, and distribution scale allowed Eaton to realize attractive cost synergies, supporting more profitable future growth as a combined entity. In order to secure tax savings, the acquisition of Cooper Industries prompted Eaton to establish its corporate headquarters in Dublin. As a result, we don't expect that Eaton will really benefit from U.S. tax reform like its U.S.-domiciled peers.Although Eaton’s legacy businesses in aerospace, hydraulics, and automotive make more-cyclical contributions to the company’s portfolio, these businesses have strong footholds in their respective markets. Eaton’s aerospace business will soon benefit from increased production of single-aisle narrow-body aircraft, which should offset ongoing weakness in the commodities-driven hydraulics segment. We also expect better growth in Eaton’s Class 8 truck transmission business as innovation in automated manual transmissions gains traction.