Eaton's Bold Acquisition Makes It An Even Stronger Buy

| About: Eaton Corp. (ETN)

Eaton (NYSE:ETN) announced a large acquisition this morning. It is acquiring Cooper Industries (CBE) for a around $11.8B. This is around a 29% premium to Cooper's previous closing price. Eaton's stock is behaving well for the acquiring firm in early trading. One reason is that this is a key acquisition for Eaton and just one more reason to buy its stock.

Key factoids around the Cooper Industries union:

  • The company expects $535mm in synergies/cost savings by 2016.
  • Eaton expects this acquisition to add 35 cents to earnings for FY2014 and be 45 cents accretive to FY2015's EPS.
  • The acquisition will significantly grow its power business and expand its global reach.

4 reasons Eaton is a bargain at $43 a share:

  • The company is selling for 10 times operating cash flow and has a generous 3.6% yield
  • Eaton is priced at little over 8 times forward earnings, a significant discount to its five year average (12.9).
  • The stock has a very reasonable five year projected PEG (1.05) for a high yielder and was expected to provide revenue growth of 6% to 8% in FY2012 and FY2013 even before the Cooper Industries buyout.
  • The median price target by the 18 analysts that cover the stock is $59.50, about 40% above the current stock price.

Disclosure: I am long ETN.