Eaton Corporation’s ETN wide market reach, accretive acquisitions, strong cash flow generation, consistent investment in research and development (R&D) programs and product improvement are contributing to its strong performance.
Tailwinds
Eaton has been investing consistently in R&D programs to introduce products that reduce energy consumption and carbon emissions. Eaton has laid out a 10-year plan that includes a $3 billion investment in R&D programs. The company plans to invest $650 million in 2022. ETN invested $333 million in the first half of 2022 compared with $302 million in the year-ago period in R&D activities.
Eaton’s strategic acquisitions allow it to foray into new markets and enhance its revenue stream. Eaton won a large follow-on order for the U.S. network of EV charging stations with 150 sites. This will help ETN grab a larger market share in the fast-expanding EV charging business in the United States. Eaton’s acquisition of Royal Power Solutions will help expand operations in multiple growth markets in the United States.
Eaton is trying to lower its debt. As of Jun 30, 2022, long-term debt was $6,277 million, down from $6,831 million as of Dec 31, 2021. The times interest earned ratio of ETN at the end of second-quarter 2022 was 24.3, up from 22.1 at the end of fourth-quarter 2021. The strong times interest earned ratio clearly indicates that the company will be able to fulfill debt obligations in the near term without any hassle.
Headwinds
Eaton’s global operations expose it to unpredictable currency translation and the current strength in dollar price can impact its export. The company’s dependence on information technology networks may make it susceptible to damage, disruptions, or shutdowns as a result of software upgrades or replacement failures. ETN activities are subject to cyber-attacks and security breaches, which might have an impact on its financial performance. Raw material shortages, price increases, and supplier insolvencies may raise operational expenses, which might impact planned production and profitability.
Other Industry Players
Other stocks from the same industry include AZZ AZZ, Emerson Electric Company EMR and Enersys ENS.
The Zacks Consensus Estimate for fiscal 2022 earnings per share of AZZ, Emerson Electric and Enersys implies an increase of 66.3%, 24.6% and 6.5%, respectively, year over year.
The Zacks Consensus Estimate for fiscal 2022 sales of AZZ, Emerson Electric and Enersys suggests a rise of 76.2%, 7.2% and 8.8%, respectively, year over year.
AZZ, EMR and ENS’ current dividend yield of 1.8%, 2.8% and 1.2%, respectively is better than the industry average of 1%.
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