Eaton Expands in South America - Analyst Blog

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Eaton Corporation ( ETN ) announced its decision to acquire Santiago-based Rolec Comercial e Industrial S.A. This acquisition will expand Eaton's operations on Latin American soil, further strengthening its existing base in Brazil and Mexico.

Rolec Comercial e Industrial S.A. primarily engages in the manufacture of integrated power assemblies, and low- and medium-voltage switchgears. In addition, the company provides engineering and mining services, and also offers heavy industrial applications. Apart from Chile, the company also has presence in Peru.

In view of Eaton's last few acquisitions, it is evident that the company is intent on diversifying its portfolio while expanding its line of businesses as well as global footprint, particularly in Europe, Middle East and Africa ("EMEA"), the Asia-Pacific region ("APAC") and now in Latin America, by taking the inorganic route.

In July 2012, Eaton completed the acquisition of a South Korean company called Jeil Hydraulics, a manufacturer of track and swing drive motors, main control valves and remote control valves. This transaction is expected to bolster Eaton's presence in the emerging markets and also expand its product coverage, with respect to its motor item segment.

As of June 30, 2012, the company had cash and short-term investments of $1.18 billion compared with $1.08 billion as of December 31, 2011. We believe Eaton's strong cash position enables it to pursue a steady inorganic growth approach.  

Following its adoption of an aggressive acquisition strategy, Eaton already experienced positive impacts in second-quarter 2012. In the last couple of quarters, the company inked some significant deals, which include the acquisition of E.A. Pedersen Company and IE Power, Inc. Riding on these acquisitions, the company's sales for the Electrical Americas segment edged up 1% year over year. In addition, we believe that decline in cost of goods sold and lower tax rate will likely benefit the company in the second half of 2012. Electrical Americas is also expected to report a strong performance in the second half of 2012.

However, we are concerned about volatile currency market conditions and slow economic growth rate in the emerging countries, primarily in China, India and Brazil, which might have a negative impact on Eaton's future results.

Eaton Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Cleveland, Ohio-based Eaton Corporation offers an array of products, such as powertrain, truck and automotive systems, electrical components and systems, hydraulics and pneumatic systems for commercial and military use. The company competes with Parker-Hannifin Corporation ( PH ).
 


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ETN , PH

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