Eaton Corp. (ETN) is still a buy

Since August 2005, diversified industrial manufacturer Eaton Corporation (NYSE: ETN) has been rated a buy. This is not likely to change any time soon, as Eaton just posted record sales and net income for 3Q 2007. Sales were up 7% to $3.3 billion. One percent of that was from organic growth, 3% came from acquisitions and 3% from currency exchanges. Net income for the quarter was up 4% to $258 million, and net income per share was up 6% to $1.71 per share. Eaton managed to post these positive figures despite absorbing costs related to recent acquisitions, a 16% decline in its NAFTA heavy-duty truck production unit, continuing low demand for US residential construction, and a global credit crunch.

Eaton is still a buy. The company has settled its tax problems with the IRS in its own favor. Defense aerospace spending continues to increase at a measured rate, while commercial aerospace production remains strong. The downturn in NAFTA heavy-duty trucks has not come as a surprise and is partially offset by continued whopping increases in vehicle and farm equipment production in Brazil. The company sold off its car mirror control business for over $100 million.

Eaton CEO Alexander Cutler is in the enviable position of having to lower FY guidance slightly, while still beating guidance forecast issued at the beginning of the year. Now, 4Q net income per share is forecast in the $1.60-$1.70 range, and FY 2007 net income in the $6.50-$6.60 per share range, still $0.40 above expectations at the beginning of the year.