ETN Eaton Corp New

Who cares about Europe? Eaton Corporation (ETN) recently reported record sales in the first quarter as strong U.S. demand more than made up for a slowing international market. This Zacks #1 Rank (Strong Buy) is still a value stock with a forward P/E of 10.7.

Eaton is a manufacturer of products in the Electrical, Hydraulics, Aerospace and Vehicles sectors.

Its 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.

First Quarter Records in Sales and EPS

On Apr 23, Eaton reported first quarter results and beat the Zacks Consensus by 2 cents. Earnings per share were a record 92 cents compared to the consensus of 90 cents. That is a 10% increase over the first quarter of 2011. It also beat the high end of the company's earnings guidance.

Sales jumped 4% to a record $4 billion.

It was a tale of two markets in the first quarter.

Sales in Electrical Americas, for instance, jumped 13% to $1.1 billion as end markets for Electrical Americas rose 7%. There was especially strong growth in the nonresidential construction market.

Electrical Rest of the World felt the European and Chinese slowdown, however, as sales fell 12% to $651 million.

"The European and Asia-Pacific electrical markets declined during the first quarter," said Alexander Cutler, CEO.

"We do not expect these markets to recover until later in the second half. For the year as a whole, we believe our Electrical Rest of World markets will decline by 1 percent, down 2 percent from our prior estimate," he added.

Eatons Says 2012 Will Be Another Record Year

Eaton was still bullish about 2012.

"We entered 2012 expecting it would be a year of subpar global economic growth, leading to approximately 5 percent growth in our markets," said Cutler.

"We continue to believe that for the full year markets will grow 5 percent, but we now believe the rate of growth in our U.S. markets will be higher than originally expected and the rate of growth in our non-U.S. markets will be lower than originally expected," he added.

Revenue is expected to grow 7.5% in 2012.

The 2012 Zacks Consensus Estimate remains unchanged at $4.43, but the analysts have yet to revise estimates since the earnings report.

That is still earnings growth of 12%.

Still a Value Stock

Eaton continues to have solid value fundamentals.

In addition to a P/E well under 15, which is my cut off for value stocks, it also has a price-to-book of 2.0. A P/B ratio under 3.0 usually indicates value.

Eaton's price-to-sales ratio is also attractive. It is hovering right at 1.0. A P/S ratio under 1.0 can mean a company is undervalued.

This 101-year old company also rewards shareholders with a dividend currently yielding 3.20%.

Eaton is still bullish about 2012 despite a slowing Europe. Maybe the US can decouple from the rest of the world after all?

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 on twitter at @TraceyRyniec.

 
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