Barron’s analyst Robyn Goldwyn Blumenthal recommended Eaton (ETN) in this week’s edition of Barron’s based on the following:

1. It used to be that Detroit suffering meant disaster for Eaton, a major supplier of parts for autos and heavy trucks. But last year, as U.S. sales of big trucks skidded a sickening 44%, Eaton managed not only to stay on the road but to increase its already solid profits.

b. Company built up a wide array of other industrial businesses, from managing power for data centers to manufacturing hydraulic systems for Airbus’ huge A380 jet.

c. Eaton’s trucking business, meanwhile, is increasingly focused on energy efficiency. Just recently the company won orders for 207 hybrid diesel-electric transit buses for Guangzhou, China, and 200 hybrid-electric vehicles for UPS.

d. Eaton has boosted earnings by an average of 22% a year over the past five years, one of the best performances among diversified industrial concerns, and it expects a 17% jump this year. Yet Eaton’s shares, at a recent $95, are changing hands just 12 times estimated 2008 earnings. That’s one of the lowest P/Es in its group and is well below Eaton’s 15-year-average multiple of 16.

e. Eaton’s dividend, which yields 2.1%. The company raised its payout 16% in January, and expects continued increases in line with earnings growth. Its long-term debt is a manageable $2.7 billion, about 30% of capitalization.

f. More than half of its revenue this year will come from international customers, particularly in emerging markets such as China, Eastern Europe and Russia, and Latin America.

g. As part of the diversification drive, Eaton recently spent $2.5 billion to buy Moeller Group, a German electrical company, and Phoenixtec, a Taiwan-based industrial power-management company.

h. Domestically, Eaton’s markets, many of which focus on nonresidential construction areas like petroleum, medical, power generation and mining. He notes that more than half of those markets are growing at double-digit rates.

Conclusion:

a. Eaton’s shares could climb more than 20% as investors come to appreciate the strengths of its products and global markets.

b. Eaton no longer is as dependent on autos and heavy trucks as it once was, but it’s playing a big role in the development of hybrid-fuel systems. The industrial powerhouse’s diversification ensures continued success.

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