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How much will the European slowdown affect global companies in Q1? Eaton Corporation (ETN - Analyst Report) felt the sting of the slowdown in the fourth quarter as earnings disappointed. However, it expected it to be temporary. This Zacks #1 Rank (Strong Buy) has plenty of value with a forward P/E of 10.9.
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.
Headquartered in Cleveland, the 101 year old company has rewarded shareholders by paying a dividend for 89 consecutive years.
On Jan 26, Eaton announced it was raising its dividend by 12% to 38 cents from 34 cents. This comes on top of a 17% increase in 2011.
The dividend is now yielding a juicy 3.1%.
2011 Was a Record Year
On Jan 26, Eaton reported its fourth quarter and full year results. It actually missed on the Zacks Consensus Estimate for the second quarter in a row. Earnings were $1.08 compared to the consensus of $1.11. This was just below the midpoint of the company's guidance range.
Sales jumped 10% to $4 billion but this was also below the company's guidance. 75% of the revenue shortfall was in the Electrical sector, with it spread evenly among various geographic locations of the U.S., Europe and Asia Pacific.
The European shortfall, however, was due to the slowing European economy. In Asia Pacific, the shortfall was primarily due to the slowdown in China as a result of restrictions on credit availability.
In the U.S., the shortfall wasn't due to a slowdown but to customer requested delays on major projects.
Eaton believed that many of the reasons behind the shortfall were temporary and shouldn't affect 2012 earnings. But were they?
2012 Zacks Consensus Estimate Holds Firm
The analysts have been more suspect of 2012 than the company.
The 2012 Zacks Consensus Estimate has been at $4.43 per share for most of the last 60 days.
That is still earnings growth of 12% compared to the record EPS of $3.96 in 2011.
Eaton in a Value Stock
Eaton shares have rebounded, along with everything else, in 2012.
But even with the big rally, there is still plenty of value.
In addition to a P/E under the S&P 500 average of 13.4, Eaton also has a price-to-book ratio of 2.2.
A P/B ratio under 3.0 usually indicates value.
Its other fundamentals are also solid. The company has a stellar 1-year return on equity (ROE) of 17.4%.
Eaton is expected to report first quarter earnings on Apr 23. The first quarter will be key as to how the Eurozone and Chinese slowdowns will shape Eaton's earnings for the rest of 2012.
Was the fourth quarter slowdown truly just "temporary"? Or will it play havoc with the rest of 2012?
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.