Eaton Corporation’s ETN shares have gained 9.9% year to date compared with the Zacks Manufacturing-Electronics industry’s growth of 4%. Organic growth and continued investment in research and development of new products are assisting the company in providing efficient power management solutions to its clients.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The power management company operates in more than 175 countries across the globe, and an ongoing improvement in the end market conditions is boosting orders and revenues. Strategic acquisitions are further expanding its market reach.
Courtesy of strong contributions from its segments, Eaton has outperformed the Zacks Industrial Products sector in the same time period.
Image Source: Zacks Investment Research
ETN shares are trading above the 50-day moving average, indicating a bullish trend.
Image Source: Zacks Investment Research
Should you consider adding ETN stock to your portfolio only based on positive price movements? Let’s delve deeper and find out factors that can help investors decide whether it is a good entry point to add ETN stock to their portfolio.
Eaton’s products are supplied to around 175 countries, and most importantly, this provides stability to the revenue generation ability of the company, as the loss of a customer will not have any significant impact on revenues and margins. Its diversified product portfolio, offering energy-efficient solutions, will help to serve a broad customer base.
Eaton operates in several markets globally, and strategic acquisitions allow it to expand into new markets and enhance its revenue stream. The company completed two acquisitions in the first half of 2024, further strengthening its Electrical Americas and Electrical Global segment. Currently, demand for the electric vehicle (EV) charging infrastructure is on the rise globally and Eaton, with its expertise, can help it grab a larger market share in the fast-expanding EV charging business.
Eaton has laid out a 10-year plan that includes a $3 billion investment in research and development (R&D) programs, allowing the company to create sustainable products. Eaton’s approach to R&D is focused on leveraging technology to design solutions that meet the needs of its customers today and into the future.
In the first nine months of 2024, the company invested $593 million in the R&D program, which is 7.3% higher than the comparable year-ago period. The ongoing investment will allow ETN to develop new advanced products and upgrade existing products, allowing it to maintain a strong position in different markets and countries where it supplies its products.
Reindustrialization and megatrends worldwide create fresh demand for Eaton’s efficient power management products. Eaton continues to receive orders from its customers across the globe and continues to register an increase in backlog.
Courtesy of Eaton’s high-quality product offering, the company has already won over $1 billion in new orders. It is in active negotiations on another $1 billion of electrical content on a small subset of these total projects. Only a tiny portion of the orders won are reflected in current total revenues, so the impact and benefit from the step-up in mega projects will be reflected in total revenues over the long term.
Eaton’s backlog, with orders, increased 26%, 14% and 19% in Electrical Americas, Aerospace and Electric Global, respectively, on a rolling 12-month basis. The increasing backlog indicates strong demand for the company’s high-quality products.
Eaton now expects adjusted earnings per share in the range of $10.75-$10.81 for 2024, indicating an increase of 18% at the midpoint from the prior-year levels.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share has increased 0.5% and 0.1% in the last 60 days, respectively. The Zacks Consensus Estimate for fiscal 2025 and 2026 earnings per share of Powell Industries POWL, another operator in this space, has moved up by 13% and 15.3% in the same time frame.
Image Source: Zacks Investment Research
Eaton has been increasing shareholder value through dividend payments and share repurchases. In 2024, it expects free cash flow in the range of $3.4-$3.6 billion. In the first nine months of 2024, it repurchased 5.3 million shares for a total of nearly $1.63 billion. The company has plans to repurchase shares in the range of $1.5-$2.5 billion in 2024.
ETN’s management has raised dividends for 15 consecutive years and increased its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.04%, better than its industry’s yield of 0.39%. For more details on ETN’s dividend, kindly click here.
Return on invested capital (ROIC) has hovered around 8% over the last few years and outperformed the industry average in the trailing 12 months. ROIC of ETN was 8.95%, compared with the industry average of 3.83%. The company has been investing effectively in profitable projects, which is evident from its ROIC.
Image Source: Zacks Investment Research
Eaton shares are trading at a premium compared to its industry. The company’s forward 12-month Price/Earnings of 29.73X is higher than the broader sector’s 20.42X and the Industry’s 26.65X.
Image Source: Zacks Investment Research
Eaton continues to benefit from the strong contribution of its organic assets. Effective power management is essential for the successful performance of a project, and Eaton continues to provide the required solution to its customers. ETN’s R&D investment allows it to upgrade its product and meet the demand of its clients.
The stock currently has a Zacks Rank#3 (Hold), and it is trading at a premium. Therefore, investors should hold back the stock and look for a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report