Eaton Corporation plc. (ETN - Free Report) received an order from the arbitration panel to pay $293 million related to claims brought by Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”), a wholly-owned subsidiary of PepsiCo, Inc. (PEP - Free Report) . This dispute is relating to certain subsidiaries Eaton acquired in the 2012 acquisition of Cooper Industries.
Pepsi claims that it was harmed by a 2011 settlement agreement that resolved litigation Pneumo Abex, LLC had previously brought against various Cooper entities. Pepsi’s contention was that the value contributed to Pneumo Abex and a newly established trust in exchange for a release of the guaranty was substantially below reasonably equivalent value, and that an inability of Pneumo Abex to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories.
Impact of the Award
Eaton expects the impact of the arbitration award to result in an after-tax expense of $205 million in the third quarter 2018, impacting its third-quarter earnings per share by 47 cents.
During second-quarter earnings update, the company projected its third-quarter earnings in the range of $1.35-$1.45 per share. The Zacks Consensus Estimate for the quarter is currently pegged at $1.43 per share.
Since the third quarter guidance did not take into consideration the impact of the arbitration award, it will need to get adjusted accordingly.
However, Eaton intends to challenge the arbitration award on several grounds.
Long-Term Plans of Eaton
Eaton continues to restructure with an objective of improving business and strengthening its margins. Eaton’s end market is improving and the growth initiatives undertaken by the company will help it to grow faster than its market. Courtesy of its ongoing research and development, Eaton continues to churn out new products, aiming to facilitate effective and easy power management.
The company is on course to deliver 11-12% earnings growth over the course of next three years. Eaton continues to generate a stable cash inflow through proficient handling of operating activities. Its strong cash flow generating capability allows it to reward shareholders through regular dividend payment and buyback of shares.
Eaton expects solid market growth to continue for next several years. Since most of its businesses are in early to mid-portion of this economic cycle, the company is going to benefit from the same for a longer period of time.
Zacks Rank & Key Picks
Eaton currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same industry are AZZ Inc. (AZZ - Free Report) and ESCO Technologies Inc. (ESE - Free Report)
AZZ sports a Zacks Rank #1 and its fiscal 2019 earnings estimates have moved up 9.4% in the past 60 days to $2.20 per share.
ESCO Technologies carries a Zacks Rank #2 (Buy) and its fiscal 2018 earnings estimates have been revised upward by 1.1% in the past 60 days to $2.68 per share.
All the stocks have surpassed the broader industry’s growth in a year’s time.
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Eaton Corporation plc. (ETN - Free Report) received an order from the arbitration panel to pay $293 million related to claims brought by Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”), a wholly-owned subsidiary of PepsiCo, Inc. (PEP - Free Report) . This dispute is relating to certain subsidiaries Eaton acquired in the 2012 acquisition of Cooper Industries.
Pepsi claims that it was harmed by a 2011 settlement agreement that resolved litigation Pneumo Abex, LLC had previously brought against various Cooper entities. Pepsi’s contention was that the value contributed to Pneumo Abex and a newly established trust in exchange for a release of the guaranty was substantially below reasonably equivalent value, and that an inability of Pneumo Abex to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories.
Impact of the Award
Eaton expects the impact of the arbitration award to result in an after-tax expense of $205 million in the third quarter 2018, impacting its third-quarter earnings per share by 47 cents.
During second-quarter earnings update, the company projected its third-quarter earnings in the range of $1.35-$1.45 per share. The Zacks Consensus Estimate for the quarter is currently pegged at $1.43 per share.
Since the third quarter guidance did not take into consideration the impact of the arbitration award, it will need to get adjusted accordingly.
However, Eaton intends to challenge the arbitration award on several grounds.
Long-Term Plans of Eaton
Eaton continues to restructure with an objective of improving business and strengthening its margins. Eaton’s end market is improving and the growth initiatives undertaken by the company will help it to grow faster than its market. Courtesy of its ongoing research and development, Eaton continues to churn out new products, aiming to facilitate effective and easy power management.
The company is on course to deliver 11-12% earnings growth over the course of next three years. Eaton continues to generate a stable cash inflow through proficient handling of operating activities. Its strong cash flow generating capability allows it to reward shareholders through regular dividend payment and buyback of shares.
Eaton expects solid market growth to continue for next several years. Since most of its businesses are in early to mid-portion of this economic cycle, the company is going to benefit from the same for a longer period of time.
Zacks Rank & Key Picks
Eaton currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same industry are AZZ Inc. (AZZ - Free Report) and ESCO Technologies Inc. (ESE - Free Report)
AZZ sports a Zacks Rank #1 and its fiscal 2019 earnings estimates have moved up 9.4% in the past 60 days to $2.20 per share.
ESCO Technologies carries a Zacks Rank #2 (Buy) and its fiscal 2018 earnings estimates have been revised upward by 1.1% in the past 60 days to $2.68 per share.
All the stocks have surpassed the broader industry’s growth in a year’s time.
Best Electric Car Stock? You'll Never Guess It.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
See Zacks Best EV Stock Free >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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