Eaton Corp.’s (ETN) better-than-expected second-quarter results were driven by continued strength in its end markets. The company also expanded its profit margins, which helped boost its earnings growth. Moreover, management anticipates solid global growth to drive its results in the second half of 2010.
Business
Eaton Corp. operates as a power management company primarily in the US, Canada, Latin America, Europe, and the Asia Pacific.
The company provides electrical components and systems for power quality, distribution, and control; hydraulics components, systems, and services for industrial and mobile equipment; aerospace fuel, hydraulics, and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy, and safety.
Growth and Income
The company is expected to grow its earnings per share 97.9% in 2010, 19.9% in 2011, and 10.5% over the long term. Eaton’s trailing 12-month return on equity was 12.2%, and the stock also offers shareholders a dividend yield of 2.6%.
This Zacks #2 Rank stock trades at 15.0x 2010 consensus EPS estimates and 12.6x 2011 consensus EPS estimates.
Second-Quarter Results
The company had total revenue of $3.4 billion, an increase of 16% from the year-ago quarter and 9% from the first quarter.
Eaton earned $1.36 per share, up from $0.23 in the second quarter of 2009. The company beat the Zacks Consensus Estimate by 19 cents, or 16.2%. Eaton has beaten the Zacks Consensus in the last five quarters by an average of 21.7%.
Guidance
Eaton now expects to earn $1.25-$1.35 per share for the third quarter and $4.90-$5.10 per share for full-year 2010.
Estimates
In the last week, the Zacks Consensus Estimate for 2010 is up 43 cents, or 9.2%, to $5.13. The Zacks Consensus Estimate for 2011 is up 26 cents, or 4.4%, to $6.14.
The Chart
Eaton shares have rebounded sharply in the last three weeks, climbing 21% since July 6. The stock was experiencing a deep correction, but the recent rebound has completely altered the direction on the chart. ETN shares are now just 6% below its 52-week high, and it looks ready to challenge that high.
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