Eaton Corp. on Feb. 1 announced the acquisition of air-to-air refueling systems maker Cobham Mission Systems (CMS) for $2.8 million, in move to grow its aerospace business. Shares were up by 3.3% and closed at $121.54 on Monday.
Eaton (ETN) said the purchase price includes $130 million in tax benefits. Excluding the tax benefits, the purchase price for CMS represents a multiple of 14 times Cobham Mission’s FY20 EBITDA and 13 times its estimated EBITDA for FY21. The acquisition is expected to close in the second half of this year.
Cobham Mission Systems is a manufacturer of environmental systems, air-to-air refueling systems and actuation mainly for the defense markets.
Eaton’s President Heath Monesmith said, “Cobham Mission Systems’ highly complementary products and strong position on growing defense platforms will enhance our fuel systems business and position our Aerospace business for future growth.”
Last week, the company had also announced its $1.7 billion acquisition of Tripp Lite, a supplier of power products and connectivity solutions including surge protectors and single-phase UPS (uninterruptible power supply systems). (See Eaton stock analysis on TipRanks)
Robert W. Baird analyst Mircea Dobre reiterated a Hold rating and a price target of $119 on the stock, saying that he is “incrementally positive" about the CMS acquisition.
Dobre noted that both the Tripp Lite and CMS acquisitions would help the company expand its distribution network, breadth of business portfolio and end-market exposure.
The analyst expects Eaton to use the proceeds from the sale of its hydraulics business to fund both acquisitions. Last year, Eaton had announced the sale of its hydraulic business to Danfoss A/S for $3.3 billion in cash.
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 9 analysts recommending a Buy and 4 analysts suggesting a Hold. The average analyst price target of $127.85 implies a 5.2% upside potential to current levels.
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