Eaton (ETN) Buys Cobham Mission Systems, Expands Aerospace

Eaton Corporation ETN announced that it has completed the acquisition of Cobham Mission Systems, a manufacturer of air-to-air refueling systems, which will allow Eaton to further expand the Aerospace business. Cobham Mission — which primarily operates in the defense space — has operations in the United States and United Kingdom.

The acquisition of Cobham Mission Systems comes after the buyout of Souriau-Sunbank. Eaton’s aerospace business contributed 12.5% of total revenues in 2020 and these acquisitions will surely increase the contribution from this segment going forward. It expects 2021 operating margin growth from the Aerospace segment in the range of 19.8-20.2%.

How Will This Acquisition Aid Eaton?

Per a report from MarketandMarkets, North America is expected to lead the global air-to-air refueling market during the 2020-2025 time period. The report also indicates that the air-to-air refueling market will increase from $501 million in 2020 to $851 million in 2025, primarily due to increasing demand for combat aircraft and military spending by various countries.

Given the expected increase in global demand for air-to-air refueling, the above acquisition will expand Eaton’s offerings in a market that has the potential to further improve from the present level. In addition, this acquisition will further strengthen the company’s position, and allow it to compete with defense majors like Lockheed Martin LMT as well as The Boeing Company BA for air refueling contracts.

Price Performance

In the past six months, shares of Eaton have gained 25.3% compared with the industry’s 23.9% rally.

Image Source: Zacks Investment Research

Zacks Rank & Key Pick

Eaton currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is AZZ Inc. AZZ, currently having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AZZ ’s current dividend yield is 1.3%. The Zacks Consensus Estimate for fiscal 2022 earnings per share of the company has moved up 1.5% in the past 60 days.

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