Eaton to Buy Aircraft Equipment Maker Cobham Mission Systems, Shares Gain About 3%

Power management company Eaton said it will acquire a leading manufacturer of air-to-air refuelling systems Cobham Mission Systems (CMS) in a $2.83 billion deal to strengthen its aerospace business.

Following this, Eaton shares traded about 3% higher at $120.86 on Monday; the stock rose over 26% in 2020.

According to the deal, Eaton will pay $2.83 billion for CMS, inclusive of $130 million in tax benefits. Excluding the amount paid for tax benefits, the purchase price represents approximately 14 times CMS’s 2020 EBITDA and 13 times its estimated 2021 EBITDA.

The acquisition would be close in the second half of 2021.

Eaton Stock Price Forecast

Twelve analysts who offered stock ratings for Eaton in the last three months forecast the average price in 12 months at $128.58 with a high forecast of $150.00 and a low forecast of $112.00.

The average price target represents a 7.04% increase from the last price of $120.12. From those 12 analysts, nine rated “Buy”, three rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $130 with a high of $145 under a bull scenario and $100 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the power management company’s stock.

Several other analysts have also recently commented on the stock. Citigroup raised the price target to $142 from $122. UBS upped the price objective to $142 from $127. Jefferies increased the stock price forecast to $150 from $130.

In addition, JP Morgan raised the target price to $120 from $114. Credit Suisse upped the price objective to $130 from $118. Deutsche Bank upped the target price to $132 from $125.

Analyst Comments

“Near term, resilient order trends in longer cycle markets, including data center/utility, support a better than expected 2020 / 1H21 outlook. Margin performance has also been impressive, even in its cyclical businesses like Aero and Hydraulics. That said, even with restructuring actions we’d note that 2021 incremental margins will likely be below-average as costs come back into the business,” said Joshua Pokrzywinski, equity analyst at Morgan Stanley.

“Longer term, we remain uncertain on Eaton’s (ETN) LT ability to outgrow IP with their current portfolio mix. While Hydraulics certainly added volatility, the cyclical upside off a potential 2020 trough would better support their growth outlook than the current Electrical/Aero core growing at LSD historically.”

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