Why Eaton Sparked up in 2012

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As 2012 nears its end, now's a good opportunity to look at what happened throughout the year to the stocks you follow. If you know the important things that a company achieved, as well as any challenges it failed to overcome, then you can make a better decision about whether it really deserves a spot in your portfolio.

Today, I'll look at Eaton (NYSE: ETN  ) . The company makes electrical, hydraulic, and drivetrain components and systems along with related services, but the biggest news from Eaton was a massive acquisition to make it a true leader in the industry. Below, you'll find more to explain what happened with shares of Eaton this year.

Stats on Eaton

Year-to-date stock return


Market cap

$18.2 billion

Revenue, past 12 months

$16 billion

Net income, past 12 months

$1.4 billion

1-year revenue growth


1-year net income growth


Dividend yield


CAPS rating


Source: S&P Capital IQ.

Why did Eaton light up in 2012?
Eaton serves a wide variety of clientele with systems needs. One example is Southwest Airlines (NYSE: LUV  ) , which entered into an agreement last year for Eaton to provide hydraulic equipment service and maintenance on its fleet of 737s. Bread-and-butter contracts like these help Eaton thrive.

The big news of the year for Eaton, though, came in May, when it announced that it would buy electrical equipment maker Cooper Industries for $11.8 billion. Eaton sees the merger as a game-changing move as it seeks growth in its power segment, and although some argued that the price was high, the buy puts Eaton in a much better competitive position against rival Emerson Electric (NYSE: EMR  ) and Europe's ABB (NYSE: ABB  ) , which itself bought Thomas & Betts earlier this year to break into the U.S. market.

As of now, though, Eaton hasn't conquered the doubts in the economy, especially those stemming from the fiscal cliff. Earlier this year, CEO Alexander Cutler said that the cliff has put the company in "economic purgatory," and he responded by cutting full-year 2012 projections for the company. Yet the potential headwinds from the cliff haven't stopped General Electric (NYSE: GE  ) from trying to make inroads into electrical infrastructure and power generation, making it clear that despite short-term concerns, long-term prospects in the industry are still quite enticing.

The challenge for Eaton will be incorporating a big increase in debt from the Cooper acquisition while still reaping the financial benefits and keeping shareholders happy with dividend growth. That'll be a tall order, but if the economy continues to improve, then Eaton should be able to grab a bigger part of a growing pie.

Will GE challenge Eaton?
GE suffered during the financial crisis, but it's now aiming to return to its industrial roots. With its push into energy infrastructure, is General Electric a buy right now? Find out in our in-depth research report offering, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE, and you'll receive continuing updates as major events unfold during the year. To get started, click here now.

Click here to add Eaton to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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