Eaton Corp’s Board of Directors authorized the company to spend up to $500 million to buy shares of its common stock. The company said it will do this in the open market and, market conditions permitting, expects to complete the repurchases by year-end.

“In today’s market, the best way to translate Eaton’s outstanding cash flow performance into value for long-term investors is to harness our capacity to support additional borrowings so we can take advantage of the intrinsic value we see in this enterprise,” said Stephen Hardis, chairman and CEO. “It would be inconsistent with our responsibilities to our owners if we did not take advantage of what we believe is a major buying opportunity.”
Hardis said that Eaton’s stock price has been unaffected by its strong earnings and the July initial public offering by Axcelis Technologies Inc., which is more than 80% owned by Eaton. “Eaton’s long-term owners have not been rewarded for the material progress we’ve achieved in strengthening our businesses, gaining far more balanced sources of earnings and delivering five years of healthy growth in our business,” he said.
He also noted that money today is rushing to so-called new economy companies while funds that traditionally invested in high quality, diversified industrial companies like Eaton have seen massive redemptions. “The result is the unavoidable rationing of money available for investment in these robust older enterprises, and investors’ self-fulfilling belief that there is no penalty for delaying such an investment,” he said. “Even worse, when Wall Street regards results as disappointing, the market’s penalties are as severe as if the company had been valued at high multiples in anticipation of extraordinary growth.”