Contrasting Eaton (ETN) and Regal Beloit (RBC)

Eaton (NYSE: ETN) and Regal Beloit (NYSE:RBC) are both industrial products companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, profitability, dividends, analyst recommendations, valuation, risk and institutional ownership.

Profitability

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This table compares Eaton and Regal Beloit’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Eaton 14.60% 12.84% 6.53%
Regal Beloit 6.34% 9.64% 4.92%

Institutional & Insider Ownership

78.9% of Eaton shares are held by institutional investors. Comparatively, 96.7% of Regal Beloit shares are held by institutional investors. 0.8% of Eaton shares are held by company insiders. Comparatively, 2.2% of Regal Beloit shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Dividends

Eaton pays an annual dividend of $2.64 per share and has a dividend yield of 3.3%. Regal Beloit pays an annual dividend of $1.04 per share and has a dividend yield of 1.4%. Eaton pays out 39.5% of its earnings in the form of a dividend. Regal Beloit pays out 21.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Eaton has increased its dividend for 8 consecutive years and Regal Beloit has increased its dividend for 8 consecutive years.

Volatility and Risk

Eaton has a beta of 1.36, meaning that its share price is 36% more volatile than the S&P 500. Comparatively, Regal Beloit has a beta of 1.44, meaning that its share price is 44% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Eaton and Regal Beloit, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Eaton 0 9 7 0 2.44
Regal Beloit 0 6 7 0 2.54

Eaton currently has a consensus target price of $88.31, indicating a potential upside of 11.18%. Regal Beloit has a consensus target price of $86.18, indicating a potential upside of 19.53%. Given Regal Beloit’s stronger consensus rating and higher possible upside, analysts plainly believe Regal Beloit is more favorable than Eaton.

Earnings and Valuation

This table compares Eaton and Regal Beloit’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Eaton $20.40 billion 1.71 $2.99 billion $6.68 11.89
Regal Beloit $3.36 billion 0.95 $213.00 million $4.74 15.21

Eaton has higher revenue and earnings than Regal Beloit. Eaton is trading at a lower price-to-earnings ratio than Regal Beloit, indicating that it is currently the more affordable of the two stocks.

Summary

Eaton beats Regal Beloit on 8 of the 15 factors compared between the two stocks.

About Eaton

Eaton Corporation (Eaton) is a diversified power management company. It is engaged in the manufacturing of 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. On January 1, 2011, it closed the acquisition of the Tuthill Coupling Group, which is a division of the Tuthill Corporation. It has five segments: Electrical Americas and Electrical Rest of World; Hydraulics; Aerospace; Truck, and Automotive. On October 1, 2010, it acquired CopperLogic, Inc. On July 15, 2010, it acquired EMC Engineers, Inc. In May 2011, it acquired Internormen Technology Group. In August 2011, it acquired IE Power, Inc. In December 2011, it acquired E.A. Pedersen Company.

About Regal Beloit

Regal Beloit Corporation is a manufacturer of electric motors, electrical motion controls, power generation and power transmission products. The Company operates through three segments: the Commercial and Industrial Systems segment, with its principal line of business in medium and large electric motors, power generation products, high-performance drives and controls and capacitors; the Climate Solutions segment, with its principal line of business in small motors, controls and air moving products, and the Power Transmission Solutions segment, with its principal line of business in power transmission gearing, hydraulic pump drives, open gearing and specialty mechanical products which control motion and torque. It sells its products directly to original equipment manufacturers (OEMs), distributors and end users. It operates distribution facilities in Plainfield, Indiana; McAllen, Texas; LaVergne, Tennessee, and Florence, Kentucky.

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