Jefferies Upgrades Eaton#
Jefferies has reinstated Eaton as a Buy following the company's acquisition of Boyd Thermal. This strategic move is expected to strengthen Eaton's position in the rapidly growing data center infrastructure market.
Acquisition Details#
The acquisition of Boyd Thermal enhances Eaton's thermal management product offerings for data centers. This includes essential products like coolant distribution units, chillers, cold plates, and heat exchangers. Jefferies anticipates that Boyd will generate approximately $1.7 billion in revenue by 2026, with nearly 90% of that revenue linked to data center demand.
Financial Implications#
Jefferies estimates that Eaton could achieve around $3 million in sales for every megawatt of installed data center capacity, with about $500,000 of that coming from Boyd's products. While the acquisition is expected to support Eaton's growth, it may have a limited impact on earnings in the short term. Jefferies projects that Boyd will contribute around $310 million in operating profit by 2026, although this will be partially offset by an estimated $340 million in additional interest expenses due to the debt incurred for the acquisition.
Debt and Cash Flow#
To finance the acquisition, Eaton took on approximately $8.5 billion in debt and €1.2 billion, with a blended interest rate of about 4.3%. Jefferies estimates Eaton's net debt to EBITDA ratio at roughly 2.6 times, but strong free cash flow could enable the company to lower this ratio within two years.
Strong Demand Across Segments#
Jefferies also highlighted robust demand in Eaton's core businesses. Orders in the electrical Americas segment increased by 16% in the fourth quarter, driven by ongoing investments in data centers. Additionally, the backlog in this segment rose by 31% compared to the previous year. The aerospace division also showed solid momentum, with orders growing by 11% over the past year and backlog increasing by 16%, supported by defense and commercial aftermarket demand. Jefferies noted that the growth in Eaton's backlog reflects sustained demand rather than a slowdown in the market.