We're Bullish on This Holding After Public Spin-Off News
We like the move, which will improve the story and the name's margins.
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Over the weekend in the Portfolio’s Forum, we discussed the speculation that Eaton (ETN) might sell its Vehicle business. If you missed it, this is what we shared:
"One other add as I catch up on some reading, seems there is a thought that Eaton (ETN) may be contemplating the sale of its vehicle unit, one that serves the commercial truck and passenger/lite duty truck markets. Per the 2025 10-K filing, 28% of its sales in 2024 were to two large OEMs.
"If Eaton were to exit the Vehicle business, it would make the company's store a purer one tied to the electrification market and the need to grow that capacity. It would also remove a lower margin business from the company's mix — the operating margins for its Electrical Americas and Electrical Global business was 26.3% for the first 9 months of 2025 compared to 16.8% for the Vehicle business.
"All in all, a positive, especially if the proceeds for the Vehicle business are near the speculated figure of $5 billion."
On Monday morning, we learned that Eaton will instead pursue a separation of its Vehicle and eMobility segments into an independent, publicly traded company. The addition of the eMobility business, given its focus on electric vehicles, makes sense since Eaton is separating from the Vehicle business. But just like the Vehicle business, eMobility has been a drag on Eaton’s overall profitability. Needless to say, if we liked the notion that Eaton was going to exit the Vehicle segment, which we do, we like it even more that the move includes eMobility.
That leaves an Eaton that is about 83% focused on electrification through Electrical America (54%) and Electrical Global (28%), with the balance in Aerospace. Those combined businesses have a consolidated operating margin that is considerably higher than the low double-digits associated with the Vehicle and eMobility businesses. As you can see, the eventual spin makes Eaton a more focused company, and a cleaner story for investors, plus it will remove a layer of cyclicality associated with the Vehicle business.
Here’s the catch: the spin off isn’t expected to be completed until the end of Q1 2027, which is more than a year from now. More than likely, we’ll hear quite a bit more on this when Eaton reports its quarterly results, and before too long, it will likely separate these two reporting lines into a spin-off bucket. If so, that will showcase the higher margins we’re talking about above.
All of this adds to our bullish stance on Eaton shares and our One rating.
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At the time of publication, TheStreet Pro Portfolio was long ETN.
