ETN: AI Data Center Demand And Boyd Deal Will Shape Outlook

We raise our Eaton price target by approximately $36 to about $337 per share, reflecting analysts' increased confidence in stronger long term revenue growth, modestly higher profitability, and sustained AI driven data center demand supported by recent price target hikes and upgrades.

Analyst Commentary

Recent Street research reflects a constructive yet increasingly nuanced view on Eaton, with higher price targets and ratings upgrades framed against growing scrutiny of valuation, execution risks, and the durability of AI driven demand.

While the latest reports emphasize robust data center orders and the strategic merits of the Boyd Thermal acquisition, Bearish analysts continue to highlight the possibility that expectations for AI related growth and margin expansion may now be embedding an unusually favorable scenario.

There is also an emerging focus on the timing and sustainability of contributions from more cyclical businesses, which are seen as key to supporting earnings growth once data center expansion normalizes.

Bearish Takeaways

• Bearish analysts caution that Eaton's valuation already discounts strong multi year AI and data center growth, leaving limited room for execution missteps or macro driven order slowdowns.
• Some note that integration and synergy delivery for the Boyd Thermal acquisition could prove more challenging than expected, creating downside risk to margin and free cash flow targets if cost or timing overruns emerge.
• Concerns persist that, as capacity additions accelerate across the sector, pricing power could moderate and pressure growth assumptions embedded in current price targets.
• Bearish analysts also flag that a slower than anticipated recovery in more cyclical segments could delay the incremental growth leg expected in 2026 and beyond, raising the risk of estimate cuts if end market demand underperforms.

What's in the News

• North American Class 8 truck orders declined 32% year over year in September to 20,500 units, with Eaton cited among key suppliers exposed to the truck production cycle (Bloomberg).
• Eaton issued new guidance for 2025, targeting 8.5% to 9.5% organic growth and earnings per share of $10.29 to $10.49, with fourth quarter organic growth expected at 10% to 12%.
• The company continued returning capital to shareholders, repurchasing about 0.25% of shares for $354.79 million in the latest quarter and 0.98% for $1.21 billion under its current buyback authorization.
• Eaton announced plans for a new 350,000 square foot manufacturing campus in Henrico County, Virginia, which will more than double its Richmond footprint and expand production of critical data center power distribution equipment starting in 2027.
• The company unveiled a new 800 VDC reference architecture developed with NVIDIA to support next generation AI data centers, positioning Eaton at the center of emerging high density, grid to chip power infrastructure.

Valuation Changes

• Fair Value: increased from approximately $301 to about $337 per share, reflecting a modestly higher intrinsic value estimate.
• Discount Rate: risen slightly from about 8.7% to roughly 10.0%, implying a higher required return embedded in the valuation model.
• Revenue Growth: increased from around 6.0% to about 6.9%, indicating a modestly more optimistic long term growth outlook.
• Net Profit Margin: edged up from approximately 17.1% to about 17.4%, reflecting a slight improvement in long term profitability assumptions.
• Future P/E: expanded from roughly 28.1x to about 29.8x, signaling a somewhat higher multiple applied to forward earnings.