KeyBanc Lowers Their Price Target on Eaton Corporation (ETN) to $93; Reiterates Buy

July 16, 2008 9:01 AM EDT

KeyBanc lowers their price target on Eaton Corporation (NYSE: ETN) from $105 to $93 and reiterates their Buy rating.

The firm also lowers their 2008 and 2009 estimates from $8.00 and $9.20 to $7.76 and $8.65. The revised estimates largely reflect a more cautious outlook regarding the Company's Automotive, Truck and Aerospace (aftermarket component) segments.

The firm said, "The Company reduced its 2008 guidance to $7.70-$8.00 (from $7.80-$8.30), primarily reflective of a $0.25/share operating reduction underpinned by incremental weakness in Automotive and Truck. We were surprised by the magnitude of the guidance revision and are subsequently reducing our estimates (2008E of $7.76 from $8.00, 2009E of $8.65 from $9.20) based on Automotive and Truck weakness previously under-addressed in our model.. That said, we believe the Company has effectively "reset the bar" with current guidance fully encapsulating earnings risk around these segments going forward. We believe the recent declines in ETN's share price have adequately contemplated this developing weakness, and in light of the downdraft following 2Q08 results (-23% from its June 5 peak vs.-13.5% for the S&P 500 over the same time period), represent an overreaction relative to forward fundamentals. We remind investors that ETN's diversified business model has materially reduced the cyclicality of Company earnings around the Automotive and Truck segments vs. previous cycles."

Eaton Corporation designs, manufactures, markets, and services electrical systems and components worldwide.

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