Curious about the company that Warren Buffett dumped, we poked around.
Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008, as filed with the Securities and Exchange Commission on February 27, 2009.
What They Do
Eaton Corporation is a diversified power management company and a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. The company sells products to customers in more than 150 countries.
With first resistance at $64.02, a recent close of $63.62, and first support at $52.60, we simply don't see any reason to put almost $64+ at risk for a potential gain of 1%, especially when the downside is almost 20%.
There is no simple way for us to say this, we think the company's balance sheet sux.
More than 46% of total assets are goodwill and intangibles, total debt is more than 1.6 times net fixed assets and more than 8 times cash.
In addition, management allowed the company to increase its total debt by more that $650 million something that in our opinion was not necessary had the board of directors grown some stones and eliminated the $320 million the company spent paying dividends.
We would also point out that had management not wasted another $100 million of company funds buying back company shares, the company's cash balance would have increased from $1.14 per share to a much more reasonable $3.68 per share.
But management didn't do any of those things.
Instead, it appears to us, that management inserted it's collective head in it's collective rear end and then prayed for a collective glass stomach so it could see where it was going.
Is this why Mr. Buffett closed his position in the company? We have no idea, but it's as good a reason as any given the seeming ineptitude of management.
For the Wax Ink Eaton Corporation Raw Value worksheet, please click here.