| Snowflake Score | |
|---|---|
| Valuation | 3/6 |
| Future Growth | 1/6 |
| Past Performance | 2/6 |
| Financial Health | 1/6 |
| Dividends | 4/6 |
ETN Stock Overview
Eaton Corporation plc operates as a power management company worldwide.
Rewards
Risk Analysis
Eaton Corporation plc Competitors
Price History & Performance
| Historical stock prices | |
|---|---|
| Current Share Price | US$137.79 |
| 52 Week High | US$175.72 |
| 52 Week Low | US$122.50 |
| Beta | 1.2 |
| 1 Month Change | 0.36% |
| 3 Month Change | 8.77% |
| 1 Year Change | -7.12% |
| 3 Year Change | 75.98% |
| 5 Year Change | 77.38% |
| Change since IPO | 1,833.90% |
Recent News & Updates
Eaton: Strong Near-Term And Long-Term Growth Tailwinds
Summary Improving supply chain challenges, a healthy backlog, and strong end market demand should support revenue growth in the near term. In the long term, ETN should benefit from the $370 bn in funding allocated by the U.S. government under the Inflation Reduction Act as well as secular growth tailwinds. The stock has outperformed since my last recommendation and I expect this outperformance to continue. Investment Thesis I last covered Eaton Corp. (ETN) in July and the company has outperformed the broader markets since then with its stock gaining mid single digit versus a mid single digit decline in S&P 500 (SPY). I expect the stock’s outperformance to continue. Eaton is experiencing strong demand in the commercial, industrial, data center, electrical, and utility end markets, which has led to increased orders in the last quarter. The increased orders and supply chain challenges have led to a record-level order backlog. With the supply chain constraints easing, the revenue growth is expected to improve sequentially in 2H FY22. The strong order backlog, improvement in supply chain issues, and healthy demand should support the revenue growth in 2H FY22 and FY23. In the long term, the company should benefit from the secular trend in digitization, electrification, and energy transition and the $370 bn in funding allocated by the U.S. government under the Inflation Reduction Act to deal with the climate crisis. Eaton’s Revenue Growth Prospects ETN is experiencing strong demand from its end markets, with significant strength in commercial, industrial, data center, residential, and electrical markets, benefiting the company's order book. However, due to the supply chain constraints present in the market, the execution of these orders got delayed, leading to the building of a record-level backlog at the end of Q2 FY22. The strong demand in Eaton’s electrical business led to a backlog growth of 74% Y/Y in the last quarter. Approximately 75% of Eaton’s business in the Electrical segment is project-based. In the Electrical Americas segment, the company experienced substantial growth in commercial, residential, and industrial markets, leading to 29% Y/Y growth in new orders. The end markets were up in the range of 18% to 39% Y/Y. The increase in new orders benefited the order backlog growth and the backlog grew 89% Y/Y and 20% sequentially. In the Electrical Global segment, all the regions experienced strong demand in data centers, commercial, and industrial markets, supporting order growth of 19% Y/Y and backlog growth of 38% Y/Y. In the Electrical segment, the order rate in the data center business was up 25% Y/Y. The orders related to the secular growth trends for the segment, which include digitization, energy transition, and electrification, have started to flow through the order book. In the Aerospace segment, orders increased 19% Y/Y and the backlog was up 12% Y/Y due to the strength in commercial aftermarket and commercial OEM businesses. In the commercial market, the improvement in both domestic and international travel markets bodes well for future growth. The increased defense spending in the U.S. and other countries across the world post the Ukraine war is also acting as a tailwind for the segment’s growth. After the acquisition of Cobham in 2021, the aerospace segment generates revenue from commercial and defense markets equally. In the commercial market, both aftermarket and OEM businesses are well below the pre-COVID levels, which indicates further recovery potential for Eaton’s sales as the market normalizes. Within the Vehicle segment, Eaton experienced strength in North America’s light vehicle markets and South America businesses last quarter, partially offset by the flat performance in Europe and the impact of COVID-related lockdowns in China. A sizeable portion of the Vehicle segment’s revenue comes from Chinese operations. With the reopening of the Chinese economy, the Vehicle segment’s revenue growth should improve in 2H FY22. In July, Eaton completed the acquisition of a 50% stake in Jiangsu Huineng Electric, which manufactures low-voltage circuit breakers in China for the renewable energy market. This will be Eaton's third electrical JV in China over the last eight months, allowing the company to expand in the region by offering a multi-tiered portfolio of products. This increases Eaton’s addressable market by about $17 bn, supporting the future growth of the company in the region.
Eaton (NYSE:ETN) Has More To Do To Multiply In Value Going Forward
What are the early trends we should look for to identify a stock that could multiply in value over the long term...
Uptick In Long-Term Secular Growth Rates Will Likely Give Eaton A Boost
Eaton has delivered near-term results above expectations, despite supply chain issues and a looming recession. The company raised guidance marking an inflection point for elevated +9%-12% sales growth and +11%-13% EPS growth. Our three- to five-year price target is $246-$265/share, representing a +13% annualized capital appreciation, and +2.5% yield equals 15.0%-15.5% potential annual return. The stock could have +10%-15% upside from current trading levels to a $160-$170/share range. This quality company has broad-based investment appeal for many types of investors. Co-Authored With Matteo Koulias Industry Growth Rates Are Strong and Accelerating Eaton Corporation (ETN) is an investment play on accelerating growth trends for electrification, energy transition, and digitalization. ETN is a top holding in the following thematic ETFs: IQ Cleaner Transport ETF (CLNR), Clean Edge Smart Grid Infrastructure (GRID), Self-Driving EV and Technology ETF (IDRV), Smart Transportation & Technology ETF (MOTO), Carbon Transition & Infrastructure ETF (NBCT), and Sustainable Energy II ETF (SOLR). The company is made up of 5 operating segments: Electrical Americas, Electrical Global, Aerospace, Vehicle, and eMobility. Electrical Americas and Global (70% Sales) Two segments, Electrical Americas and Global (70% sales), produce highly engineered electrical components relating to energy storage and grids that are sold to a wide variety of industrial, government, commercial, and residential end users. Market forces (high fuel prices, energy inflation, supply chain bottlenecks, geo-politics, and climate change urgency) are driving +10-11% annual sector growth for clean energy and electrical grid products and service, positioning this industrial segment to more than double by 2026-2030. Of all energy investments, renewables, grids, and storage account for more than 80%. With Eaton focusing on residential smart grids and industrial grid modernization, they are poised to expand their sales rapidly as they expect the sector to grow by 4.6x in 2025 compared to 2021. Investment spending in electricity networks, 2016-2020 vs. 2026-2030 in the Net Zero 2050 Scenario ($ Billions) ((IEA)) Aerospace (14% Sales) The next largest segment is Eaton's Aerospace (14% sales). This segment consists of fuel, hydraulics, and pneumatic systems for both commercial and military use. The commercial/military end user markets each represent 50% of sales. After significant lows due to the pandemic, the aerospace industry is set to rebound with international flight restrictions being loosened, and high demand for air travel. This will lead to pre-pandemic or higher levels by 2024 and according to Research and Markets will grow at a CAGR of 9.1% to 2026. United States Aerospace CAGR Growth 2021-2026 (Research and Markets) The White House FY 2023 defense budget request of $872B represents a +8% increase in spending. Speaker Pelosi's trip to Taiwan, which predictably led to saber rattling, indicates the high degree of bipartisan domestic support for this issue. Rising geopolitical tensions in Europe (Ukraine) and Asia (Taiwan) are leading to traditionally "dovish" countries devoting more resources to boost military spending commitments. Overwhelmingly PWC expects that for every dollar in increased global defense spending, 70% will be categorized as "aerospace" weapon systems. United States Government Defense Spending and Military Aircraft Market CAGR through 2032 (Statista) eMobility (3% Sales) and Vehicle Segment (13% Sales) The last two segments are the mature Vehicle (13% sales) and rapidly growing eMobility (3% sales). Both these segments design and manufacture vehicle parts to improve power management, fuel economy, and performance of cars, trucks, commercial vehicles, and off-road vehicles, with eMobility focusing primarily on the electrification of vehicles. The eMobility segment is poised to have exponential growth in the coming years with the growing adoption of electric vehicles and cars. In Eaton's 2022 investor presentation, the company estimates it can get +27% total CAGR for the segment through 2025. The eMobility segment's growth potential for Eaton will be felt in the coming years when it should have a major impact on the company and its overall revenues and profits. By 2025-26, this division could have $1B of sales and an operating margin of around 8%-12% and be on track for $2-$4B in sales and a 15% operating margin by 2030. Electric Car Sales 2010-2030 % Share in the Net Zero Scenario 2050 ((IEA)) The slower growth Vehicle division generates solid cash flow for Eaton, which the company uses to redeploy into other, more promising areas. In addition, this division could be a candidate for a sale, at the right price. Secular Fundamentals Driving 11%-13% NT Organic Sales Growth These promising industry trends are currently being reflected in recent financial results. ETN has recently had a string of higher-than-expected reported quarterly financial results. Near-term organic growth rates are now tracking 11%-13% and backlogs have spiked Y/Y. Q2 2022 Financial Results - Components of Growth (Eaton and Sapling Wealth Management, LLC) In light of across-the-board higher demand, management has increased its sales growth guidance twice in 2022. Management Guidance Increasing in Line with Secular Growth Trends (Eaton) 9%-12% Top-Line Growth 2023-26 with Expanding Operating Margins We expect the Electrical segment (U.S. and global) will deliver high single-digit/low double-digit sales growth and that this will anchor long-term growth rates for this company. We project margins for the Electrical Divisions will uptick slightly by 2026, reflecting strong demand dynamics and anticipating payoffs in upcoming valued added engineered products. As the eMobility division's sales growth compound, this promising division will really begin to move the company's revenue meter in the 2025-2026 period. Management guidance for eMobility operating margins is 15.0% in 2030, however, this could be conservative. Projected Sales and Margins Eaton Corporation 2022-2026 (Sapling Wealth Management, LLC) EPS Growth +11%-13% Range Through 2026 Without making any heroic assumptions on sales or margins, ETN's historical EPS growth rate jumps to +11-13%, which is well above its historical EPS growth and makes the company appealing to a wide range of investors. The current payout rate of 43% is below its historical rate of around 50% and therefore could grow at an annual +15%-20% rate over this time period. Accelerating Sales and Rising Margins Drive Strong EPS & Dividend Growth Prospects (Sapling Wealth Management, LLC) Lots of Options for Free Cash Flow Capital Allocation Free cash flow, after capex, was $201 million in Q2 2022 (about 3.8% of sales). There are plenty of uses for this capital, including share repurchases, acquisitions, and investments in new products and technologies. We estimate that the company's ROE is 16.7% and investments in new technologies and services could yield even higher results. The allocation of this free cash flow is baked into our model with annual share repurchases of 1%-2% of shares outstanding and a modest level of acquisitions.
Shareholder Returns
| ETN | US Electrical | US Market | |
|---|---|---|---|
| 7D | 3.2% | 3.2% | 1.0% |
| 1Y | -7.1% | -19.1% | -20.0% |
Return vs Industry: ETN exceeded the US Electrical industry which returned -23.2% over the past year.
Return vs Market: ETN exceeded the US Market which returned -23.2% over the past year.
Price Volatility
| ETN volatility | |
|---|---|
| ETN Average Weekly Movement | 3.7% |
| Electrical Industry Average Movement | 10.3% |
| Market Average Movement | 6.8% |
| 10% most volatile stocks in US Market | 15.5% |
| 10% least volatile stocks in US Market | 2.8% |
Stable Share Price: ETN is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 4% a week.
Volatility Over Time: ETN's weekly volatility (4%) has been stable over the past year.
About the Company
| Founded | Employees | CEO | Website |
|---|---|---|---|
| 1911 | 85,947 | Craig Arnold | https://www.eaton.com |
Eaton Corporation plc operates as a power management company worldwide. The company’s Electrical Americas and Electrical Global segment provides electrical components, industrial components, power distribution and assemblies, residential products, single and three phase power quality and connectivity products, wiring devices, circuit protection products, utility power distribution products, power reliability equipment, and services, as well as hazardous duty electrical equipment, emergency lighting, fire detection, explosion-proof instrumentation, and structural support systems. Its Aerospace segment offers pumps, motors, hydraulic power units, hoses and fittings, and electro-hydraulic pumps; valves, cylinders, electronic controls, electromechanical actuators, sensors, aircraft flap and slat systems, and nose wheel steering systems; hose, thermoplastic tubing products, fittings, adapters, couplings, and sealing and ducting products; air-to-air refueling systems, fuel pumps, fuel inerting products, sensors, valves, and adapters and regulators; oxygen generation system, payload carriages, and thermal management products; and wiring connectors and cables, as well as hydraulic and bag filters, strainers and cartridges, and golf grips for manufacturers of commercial and military aircraft, and related after-market customers, as well as industrial applications.
Eaton Corporation plc Fundamentals Summary
| ETN fundamental statistics | |
|---|---|
| Market Cap | US$53.12b |
| Earnings (TTM) | US$2.31b |
| Revenue (TTM) | US$19.78b |
23.7x
P/E Ratio2.8x
P/S RatioIs ETN overvalued?
See Fair Value and valuation analysisEarnings & Revenue
| ETN income statement (TTM) | |
|---|---|
| Revenue | US$19.78b |
| Cost of Revenue | US$13.34b |
| Gross Profit | US$6.44b |
| Other Expenses | US$4.12b |
| Earnings | US$2.31b |
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
n/a
| Earnings per share (EPS) | 5.81 |
| Gross Margin | 32.55% |
| Net Profit Margin | 11.70% |
| Debt/Equity Ratio | 59.1% |
How did ETN perform over the long term?
See historical performance and comparison