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Why Eaton Corporation Might Be a Powerful Opportunity

By Brian D. Pacampara, CFA – Feb 21, 2014 at 10:15AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning makes sense.

What: Shares of Eaton Corporation (ETN 0.80%) gained slightly on Friday after Nomura Securities initiated coverage on the diversified power company with a buy rating.

So what: Along with the bull call, analyst Shannon O'Callaghan planted a price target of $87 on the stock, representing about 20% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's year-to-date pullback, O'Callaghan thinks that Eaton is too cheap to pass up given its strong competitive position and growth potential.

Now what: According to Nomura, Eaton's risk to reward trade-off is pretty attractive at this point. "Following its $13bn transformative acquisition of Cooper (December 2012), Eaton is a leading diversified power management company with both cyclical and operational earnings drivers," noted O'Callaghan. "Over 60% of segment profit now comes from Eaton's leading electrical businesses, while the balance comes from quality (though more cyclical) Vehicle and Hydraulics businesses and a solid Aerospace business." When you couple those positives with Eaton's forward P/E of 13 and 2%-plus dividend yield, it's tough to disagree with Nomura's bullishness. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Eaton Plc Stock Quote
Eaton Plc
ETN
$163.45 (0.80%) $1.30

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