Have you been paying attention to shares of Eaton (ETN)? Shares have been on the move with the stock up 2.1% over the past month. The stock hit a new 52-week high of $247.55 in the previous session. Eaton has gained 2.1% since the start of the year compared to the 15.4% move for the Zacks Industrial Products sector and the 24.5% return for the Zacks Manufacturing – Electronics industry.
What’s Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 31, 2023, Eaton reported EPS of $2.47 versus consensus estimate of $2.34.
For the current fiscal year, Eaton is expected to post earnings of $10 per share on $23.12 billion in revenues. Meanwhile, for the next fiscal year, the company is expected to earn $11.10 per share on $24.73 billion in revenues. This represents a year-over-year change of 10.76% and 6.95%, respectively.
Valuation Metrics
Eaton may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Eaton has a Value Score of C. The stock’s Growth and Momentum Scores are B and A, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 24.6X current fiscal year EPS estimates, which is a premium to the peer industry average of 20.7X. On a trailing cash flow basis, the stock currently trades at 24.5X versus its peer group’s average of 18.5X. Additionally, the stock has a PEG ratio of 2.09. This isn’t enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Eaton currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Eaton passes the test. Thus, it seems as though Eaton shares could have a bit more room to run in the near term.
How Does ETN Stack Up to the Competition?
Shares of ETN have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is AZZ Inc. (AZZ). AZZ has a Zacks Rank of # 1 (Strong Buy) and a Value Score of A, a Growth Score of A, and a Momentum Score of B.
Earnings were strong last quarter. AZZ Inc. beat our consensus estimate by 20.20%, and for the current fiscal year, AZZ is expected to post earnings of $4.69 per share on revenue of $1.53 billion.
Shares of AZZ Inc. have gained 7.4% over the past month, and currently trade at a forward P/E of 14.52X and a P/CF of 8.58X.
The Manufacturing – Electronics industry is in the top 5% of all the industries we have in our universe, so it looks like there are some nice tailwinds for ETN and AZZ, even beyond their own solid fundamental situation.
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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
AZZ Inc. (AZZ) : Free Stock Analysis Report