Jefferies Bullish on Eaton: Boyd Thermal Acquisition Enhances Data Center Business Exposure

Investing.com - Jefferies has upgraded Eaton to a Buy rating after completing its acquisition of Boyd Thermal, stating that the deal strengthens Eaton’s position in the rapidly growing data center infrastructure market.

Jefferies’ target price is set at $430, based on an estimated enterprise value to EBITDA ratio of about 24 times in 2026.

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The broker said the acquisition expands Eaton’s thermal management product portfolio for data centers, adding products such as coolant distribution units, coolers, cold plates, and heat exchangers. Boyd is expected to generate approximately $1.7 billion in revenue by 2026, with nearly 90% related to data center demand.

Jefferies estimates that after integrating Boyd, Eaton can generate about $3 million in sales per installed megawatt of data center capacity, with roughly $500,000 attributed to Boyd’s products.

The broker noted that this acquisition should support growth while having limited impact on near-term profitability. Boyd is projected to contribute about $310 million in operating profit in 2026, but this is largely offset by approximately $340 million in additional interest expenses from debt used to finance the deal.

Jefferies said Eaton took on about $8.5 billion in debt and €1.2 billion to complete the acquisition, with an overall interest rate of approximately 4.3%. The company’s net debt to EBITDA ratio is estimated at around 2.6 times, but strong free cash flow could allow Eaton to reduce this level within two years.

The broker also pointed out that demand for Eaton’s core business remains strong. Its Electrical Americas segment saw a 16% increase in orders in the fourth quarter, driven by continued investment in data centers, with backlog orders up 31% year-over-year.

The company’s aerospace division also remains robust, with orders up 11% and backlog increasing 16% over the past year, supported by defense and commercial aftermarket demand.

Jefferies stated that the growth in Eaton’s backlog reflects sustained demand rather than a slowdown in end markets, and any slowdown in backlog growth may be due to increased capacity rather than order weakness.

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