Jefferies has returned Eaton Co. to a Buy recommendation after Eaton completed its acquisition of Boyd Thermal, a move the firm says strengthens Eaton's positioning in the rapidly expanding data center infrastructure market.
The brokerage established a $430 price objective for Eaton, deriving that target from an approximate 24-times multiple applied to the firm's 2026 enterprise value to EBITDA estimate.
Jefferies emphasized that the Boyd Thermal purchase broadens Eaton's thermal management product set for data centers. The transaction adds equipment such as coolant distribution units, chillers, cold plates and heat exchangers to Eaton's portfolio, increasing the company's addressable offering for facility-level cooling and liquid-cooling components.
Boyd is projected to generate about $1.7 billion in revenue in 2026, and Jefferies notes that nearly 90% of that revenue is tied to data center demand. With Boyd consolidated into Eaton, the brokerage calculates potential revenue capture of roughly $3 million in sales for each megawatt of installed data center capacity, of which about $500,000 would be attributable to products brought in by Boyd.
On near-term profitability, Jefferies said the acquisition should support growth but is expected to have a limited effect on earnings in the immediate term. The firm forecasts Boyd would contribute about $310 million in operating profit in 2026; however, that contribution is largely offset by roughly $340 million in additional interest expense tied to the debt used to fund the acquisition.
Jefferies reported that Eaton assumed approximately $8.5 billion of debt and an additional c1.2 billion to complete the transaction, at a blended interest rate of about 4.3%. The brokerage estimates Eaton's net debt to EBITDA ratio at roughly 2.6 times following the deal, while noting that strong free cash flow could permit the company to reduce leverage within two years.
Beyond the acquisition, Jefferies pointed to healthy demand across Eaton's core divisions. Orders in Eaton's electrical Americas segment increased 16% in the fourth quarter, a gain Jefferies attributed in part to continued investment in data centers, and backlog in that segment rose 31% from the prior year.
Momentum also persisted in Eaton's aerospace business, where orders climbed 11% over the last year and backlog expanded 16%, supported by demand in both defense and commercial aftermarket channels.
Jefferies framed the backlog expansion as a reflection of sustained demand rather than weakening end markets, adding that any slowdown in the pace of backlog growth could be driven by increases in capacity rather than a falloff in orders.
Implications
- The acquisition materially increases Eaton's exposure to data center thermal-management revenue streams.
- Near-term earnings are expected to be largely neutral as operating profit gains are offset by higher interest costs.
- Leverage rises materially post-close but could be reduced over time through free cash flow.