$1 Billion Not Enough for Eaton's (ETN) Auto Parts Unit, Says Analyst

This morning it was reported that Eaton (NYSE: ETN) is weighing the sale of its auto-parts unit. Press reports say the unit may be valued at 1 billion. However, in the view analyst Andrew Casey of Wells Fargo, the suggested price tag looks too low, and this makes him skeptical.

"We find the approximate $1 billion valuation as more than likely inaccurate," he said. "5x EBITDA multiple is beneath the automotive peer average of approximately 6.4x 2013E EBITDA and 5.7x 2014E EBITDA. Further, we believe the reported $1 billion valuation may be at least 50% beneath more appropriate valuation, given the business has high barriers to entry, substantial growth potential due to fuel efficiency requirements, and typically generates above-average adjusted operating segment profit margins."

There also does not appear to be any catalyst to force the company to divest the Automotive business at a lower than appropriate EBITDA multiple, added the analyst.

Wells Fargo has an Outperform rating on Eaton Corporation.

For an analyst ratings summary and ratings history on Eaton Corporation (NYSE: ETN) click here. For more ratings news on Eaton Corporation click here.

Shares of Eaton Corporation closed at $65.62 yesterday.

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