Eaton moves one step closer to becoming a cleaner bet on the AI boom

A new deal from Eaton gives investors exactly what they want: a leaner company with greater exposure to the AI data center boom. Auto parts manufacturer Dana has agreed to combine with Eaton's lagging Mobility business in a deal that values the unit at $5.1 billion, the companies said on Thursday. The move not only removes a drag on Eaton's earnings growth but also positions the company to benefit from higher-margin businesses that support the data center buildout. During Thursday's Morning Meeting , Jim Cramer said it's just the latest example of the industrial conglomerate "doing everything right." The transaction, expected to close in the first quarter of 2027, should boost Eaton's organic growth rate. Combining Dana and Eaton's Mobility unit will create a more comprehensive vehicle technology supplier valued at roughly $10 billion. Both businesses make technologies that manage the flow of power through vehicle propulsion systems. Thursday's news moves Eaton one step closer to fulfilling its pledge to divest its Mobility division. In January, the company announced its intention to shed the business – but how exactly it would accomplish that remained unclear until now. It's a smart move by management. We've viewed the decision as "addition by subtraction." Shedding Eaton's slower-growing automotive businesses – which have experienced a decline in sales and compressed operating margins – will help the company focus on its more promising lines. Chief among them are Eaton's power management solutions and electrical equipment, which are housed in the company's Electrical Americas segment and accounted for around 48% of overall sales last quarter. There has been a huge increase in sales as data centers race to keep up with unprecedented demand for artificial intelligence computing power. Revenue for Electrical Americas hit an all-time high in the most recent quarter, up 20% year over year. Data center revenue surged 50% versus the year-ago period. Segment profit came in a bit short, but it was still an amazing quarter. "Without [Mobility], the electrical equipment, the data center exposure, the now liquid cooling exposure, will really get to shine. It will become a much more secular grower," said Jeff Marks, the Investing Club's director of portfolio analysis. Wall Street analysts shared similar sentiments. BNP Paribas called this morning's announcement a "clear positive for Eaton shareholders as it accelerates the company's plan to focus on its core higher growth/higher margin Electrical and Aerospace businesses." Aerospace is another bright spot for Eaton – albeit less so than data center winner Electrical Americas. Sales, segment profit, and segment margin all reached record highs last quarter. The unit includes products like hydraulic power packs for business jets and fuel pumps for commercial aircraft. Another positive is the deal's structure. The transaction uses the so-called Reverse Morris Trust structure, which helps Eaton avoid a large corporate tax bill that an outright sale of the business might have triggered. Eaton will receive a cash distribution of roughly $1.1 billion, subject to adjustments. The company can use this to pay down its corporate debt or fund growth in other areas. For Eaton to obtain tax-free status, the firm must spin off its Mobility division as a separate entity, withdraw cash, and then merge that business with Dana. The catch? Eaton shareholders must own at least 50.1% of the combined entity, while Dana shareholders will own roughly 49.9%. This deal is different from recent divestitures in the Club portfolio, such as FedEx spinning off its less-than-truckload unit into FedEx Freight and DuPont spinning off its electronics business into Qnity . In those instances, FedEx Freight and Qnity stand on their own as separate companies. In this instance, Eaton's Mobility business will be combined with Dana immediately. We're not 100% sure what we'll do with these newly-issued shares once the deal's done. "Do I want to own the auto business? I'm not so sure about that," Marks said Thursday. "We'll see closer to the actual breakup date how the auto industry is doing." He added, "They'll have some synergies unlocked. ... So, I think it's a decent decision on Eaton's part." As for our next move with Eaton? We already trimmed some on Wednesday . It wasn't a change in thesis, but rather locking in gains after a big 2026 run. In addition, SpaceX's public debut on Friday could trigger some market volatility, particularly in AI infrastructure plays. Shares of Eaton are up more than 4% Thursday, trading around $391 apiece. The stock would have to fall for us to consider buying any back. That's why we downgraded Eaton to a 2 rating from a buy-equivalent 1 this week. (Jim Cramer's Charitable Trust is long ETN. 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