1. Eaton Corporation plc (NYSE:ETN)
Number of Hedge Fund Investors In Q1 2024: 85
Eaton Corporation plc (NYSE:ETN) is an Ireland based company that sells valves, actuators, wiring, and other industrial products that can be used in data centers, EV supply chains, and other lucrative areas. This sets it up rather well to benefit from the global wave of electrification and the growth in data centers due to the AI boom. Additionally, the US government has earmarked trillions of dollars in infrastructure and EV spending through the Bipartisan Infrastructure Act and the Inflation Reduction Act – both of which will stimulate demand for Eaton Corporation plc (NYSE:ETN)’s products. It also benefits from a noticeable exposure to the stable aerospace industry. Eaton Corporation plc (NYSE:ETN)’s backlogs during the second quarter jumped by 27% for its Electrical business division and by 11% for the Aerospace division. The growth in Electrical orders came on the back of strong spending in the data center and hyperscaler market.
However, Eaton Corporation plc (NYSE:ETN) has struggled due to Europe’s economic slowdown, which has affected the otherwise strong performance of the Electrical business division. During its latest earnings call, here’s what management had to say on the matter:
We would intend and anticipate to narrow the gap between those two businesses and narrow the gap the right way, which is the Global business needs to do significantly better. We have no expectations at all that we’d see retrenchment in our Americas business. And so — but I will say, as you think about the restructuring program that we launched, $375 million of spending, $325 million of benefits. 2/3 of that, more or less, will be in the Electrical segment with a heavy concentration in Global. So we are clearly working hard to improve margins in the Electrical Global business. One of the reasons why this gap kind of widened and opened up is that as we’re all aware, in the U.S. market, the North America market is doing very well right now.
There’s a lot of activity. There’s a lot of growth. We have a very strong strategic position in the North America margin — market overall. And so there are just a lot of things today that are really positive in the Americas markets that are allowing us to continue to expand margins there. And as you know, a lot of the European markets have been much weaker than we anticipated. You see some of the macroeconomic data coming out of Europe, Germany specifically, and a lot of the market segments in Europe where we have a strong position are some of the weaker parts of the market. If you think about the MOEM segment, you see it in some of the automation data from some of the other electrical peer companies, the residential market. And so I think today, those margins will get better.
If we look forward, we’re obviously anticipating margins getting better, there’s easier comps in the second half of the year as well. But without a doubt, there’s plenty of opportunity to expand our margins in our Global segment.
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