Eaton: Well-Managed, Competitively Advantaged Industrial Leader

Christopher Rossbach of J. Stern & Co. presented his in-depth investment thesis on Eaton Corporation (US: ETN) at Best Ideas 2023.

Thesis summary:

Eaton, the US power management company, is a key beneficiary of the shift towards electrification. During its annual analyst day, held in March 2021, Eaton outlined its vision for the years ahead, as the transition to a low-carbon economy accelerates and as “everything as a grid” becomes a reality. As the sources of electricity become increasingly renewable and the uses of power more electric, the electrical industry’s role will gain in importance, becoming the central switchboard that powers the future.

“Everything as a grid” translates into “homes as a grid”, “offices as grid” and “datacentres as a grid”, fuelling demand for edge computing and distributed IT and leading to dramatic changes in the electrical value chain. Eaton’s decades-long domain expertise, rich IP, extensive network of partners and distributors and large installed base place it well in this rapidly evolving market.

In fact, Eaton participates across the lifecycle of different energy transition projects. EV charging infrastructure is expected to be a revenue-generating USD 0.7-1.2 billion opportunity by 2030, with Eaton looking to participate in 12-20,000 EV multi-charging projects in Europe and the US by 2030.

Larger-scale infrastructure projects will add additional revenue opportunities, with examples including flagship highway high-voltage projects in the US, Canada and China. Microgrids are expected to be a USD 40 billion market, supporting carbon footprint reduction targets as well as enhancing grid resilience, translating in a USD 0.4-0.7 billion opportunity for Eaton by 2030, with the company already participating in over 600 projects to date.

Finally, building applications is as a key opportunity, with Eaton tapping into demand for zero-energy buildings. The company believes it can generate USD 5.7 billion in revenues by 2025 in this area, a 30% increase from recent levels.

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About the instructor:

Christopher Rossbach is a Co-Founder, Managing Partner and Chief Investment Officer of J. Stern & Co., a private investment partnership based in London and Zurich. Chris is also the portfolio manager of the Firm’s World Stars Global Equity Fund.

Stern invests with a long-term, fundamental, value-based approach and manages money for families, trusts, charities, endowments, institutions, and other long-term investors.

Chris holds a BA from Yale University, where he was a Humanities major and awarded the Scott prize (1873) for modern languages, and a MBA from Harvard Business School.

He is Chair of the Warburg Charitable Trust of the Warburg Institute, a member of the Investments Committee of the University of London, both in London, and a member of the Atlantik-Brücke, an association of German business and political leaders, in Berlin.

Together with Jerome Stern, Chris co-founded Stern in 2012. Before that, Chris founded Merian Capital where he was Managing Partner and Portfolio Manager. Worked at firms including, Magnetar Capital’s, Lansdowne Partners and Perry Capital. Before moving to London, Chris started his career in investment banking at Lazard Frères in New York.

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