December 24, 2012 at 08:37 AM EST
Eaton Corp’s Price Target Lifted at JP Morgan; Cooper Acquisition a Catalyst for Growth (ETN)

Power management specialist Eaton Corp. (ETN) late Friday received some continued bullish commentary from analysts at JP Morgan.

The firm backed its “Overweight” rating on ETN and lifted its price target from $55 to $60. That new target suggests an 11% upside to the stock’s Friday closing price of $53.84.

A JP Morgan analyst commented, “We are updating our estimates and price target following Eaton’s acquisition of Cooper Industries. While management originally guided to EPS dilution of $0.10 in 2013, we believe the cheap financing secured by the company and the 2012 close will likely result inslight accretion. The financing package consisted of $600MM of 0.95% notes due 2015, $1.0B of 1.70% notes due 2017, $1.6B of 2.75% notes due 2022, $700MM of 4.0% notes due 2032, and $1.0B of 4.15% notes due 2042. This represents a weighted average cost of debt of 2.74%, which is well below previous debt offerings by the company, which carried interest rates in the mid-to-high single digits. The capital raise was both smaller and cheaper than our expectations and what we believe to be Street expectations as well, and results in significantly lower interest expense than previously forecast. Additionally, the early close of the deal allows the company to pull forward integration costs into Q4. We reiterate our OW rating as we continue to believe the stock will be re-rated to a diversified multiple now that the deal is complete.”

Eaton Corp. shares were inactive in premarket trading Monday. The stock has risen more than 23% year-to-date.

The Bottom Line
Shares of Eaton Corp (ETN) have a 2.82% dividend yield, based on Friday’s closing stock price of $53.84. The stock has technical support in the $48-$50 price area. The shares are trading near all-time highs.

Eaton Corp. (ETN) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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