Reasons to Add Eaton (ETN) Stock to Your Portfolio Now

Eaton Corp. plc ETN, with its rising backlogs, systematic capital expenditure and rising earnings estimates, offers a great investment opportunity in the Industrial Products sector.

Let’s focus on the reasons that make this Zacks Rank #2 (Buy) stock a solid investment pick at the moment.

Growth Projections & Surprise History

The Zacks Consensus Estimate for ETN’s 2024 earnings per share (EPS) has increased 2.4% to $10.25 in the past 60 days. The Zacks Consensus Estimate for ETN’s total revenues for 2024 stands at $24.93 billion, which indicates year-over-year growth of 7.5%.

The company’s (three to five years) earnings growth is pegged at 11.8%. It delivered an average earnings surprise of 4.79% in the last four quarters.

Return on Equity

Return on equity (ROE) indicates how efficiently a company has been utilizing its funds to generate higher returns. Currently, Eaton’s ROE is 20.05% compared to its industry’s average of 9.99%. This indicates that the company has been utilizing its funds more constructively than its peers in the industry.

Solvency & Liquidity

Eaton’s times interest earned ratio (TIE) at the end of the fourth quarter of 2023 was 26.3. The TIE ratio being more than 1 indicates that the company will be able to meet its interest payment obligations in the near term without any problems.

The company’s current ratio at the end of the fourth quarter was 1.51, higher than the industry’s average of 1.34. The ratio, being greater than one, indicates the company’s ability to meet its future short-term liabilities without difficulties.

Dividend History

Eaton has been increasing shareholders’ value through solid dividend payments. In February 2024, ETN announced a quarterly dividend of 94 cents per share, an increase of 9.3% from the previous level of 86 cents per share, resulting in an annual dividend of $3.76 per share. ETN’s current dividend yield is 1.2%.

Rising Backlog and Capital Expenditure

Eaton’s solid order activities resulted in a backlog of $9.5 billion in Electrical Americas and $3.2 billion in the Aerospace segment at the end of the fourth quarter of 2023, which increased by 18% in Electrical Americas and 13% in Aerospace on a 12-month basis, respectively. Eaton’s Electrical and Aerospace segment backlog growth remained strong as orders and the supply chain began to normalize gradually.

Strategic capital investments are making Eaton Corporation stronger and more resilient. Eaton’s capital expenditures were $757 million in 2023, and the company now expects its capital expenditure plan to be worth $800 million for 2024. Eaton invested $754 million in R&D programs in 2023 and now has laid out a 10-year plan that includes a $3 billion investment in R&D programs.

Price Performance

In the past three months, ETN shares have risen 30.6% against its industry’s average return of 21.4%.

Image Source: Zacks Investment Research

Other Stocks to Consider

A few other top-ranked stocks from the same sector are Powell Industries POWL, which sports a Zacks Rank #1 (Strong Buy), and Donaldson Company DCI and AptarGroup Inc. ATR, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Powell Industries’ long-term earnings growth rate is pegged at 14%. The Zacks Consensus Estimate for the company’s fiscal 2024 sales stands at $839.2 million, which calls for a year-over-year increase of 20%.

Donaldson’s long-term earnings growth rate is pegged at 10.5%. The Zacks Consensus Estimate for the company’s fiscal 2024 sales is pegged at $3.58 billion, which implies a year-over-year increase of 4.2%.

AptarGroup’s long-term earnings growth rate is pegged at 7%. The Zacks Consensus Estimate for the company’s 2024 sales is pegged at $3.62 billion, which indicates a year-over-year rise of 3.8%.

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