In the evolving landscape of American business, a compelling trend has emerged known as "U.S. reshoring." This phenomenon involves the return of outsourced manufacturing and production activities to domestic soil, driven by motives such as heightened supply chain resilience, job generation, and decreased reliance on foreign sources. This movement holds the promise of redefining the U.S. industrial sector. Today, analysts at UBS highlighted their top pick based on this trend - Eaton Corporation (NYSE:ETN).
UBS analysts recently hosted an NDR with Eaton Chairmen & CEO Craig Arnold, President & COO of Electrical Sector Heath Monesmith and IR VP Chip Walker. The firm's main takeaway from the event is that "the demand inflection is here and mgmt is laser focused on maximizing this "unique" opportunity to deliver multi-year outsized growth behind the company's close alignment w/ U.S. mega-trends (U.S. Reshoring + Electrification)."
The analysts note the company's execution is notable, achieving a ~50% success rate in U.S. mega project electrical content - surpassing its ~30% market share - thanks to alignment with the scale and complexity of its expertise. Initial victories also establish a path for forthcoming orders, given multi-phase procurement patterns of large projects and customer preference for consolidated suppliers.
Reinforcing the firm's outlook, Eaton appears poised for robust 2024 order rates and insulation against substantial backlog depletion. Anticipating catalysts for orders, substantial growth enhancement and margin growth potential, they expect ongoing backing for the stock's valuation, solidifying it as a favored choice for 2023 and top pick for U.S. Reshoring.
The firm reiterated a Buy rating and $255 price target on Eaton.