If you’ve been watching Eaton’s stock, you’re probably noticing it’s been on quite a ride. Whether you’re a holder wondering what’s next or someone eyeing a potential buy, it’s natural to have a few questions about where the value stands right now. Eaton’s price has nudged up by 0.9% over the past week and 2.3% this past month, which might not seem huge. If you zoom out, the growth looks a lot more impressive. Over the past year, it’s gained 12.2%, and a five-year view shows an enormous 276.2% return. Clearly, there’s been momentum here, partly powered by ongoing market interest in industrial leaders and a broader push toward electrification and infrastructure upgrades, both big themes in Eaton’s world.
But immediate price gains only tell part of the story. When it comes to investing, valuation is what really separates solid opportunities from pure speculation. Eaton actually scores a 1 out of 6 on traditional undervaluation checks, meaning it’s currently considered undervalued by just one of the six main measures analysts use. That might give you pause, but remember, valuation scores are just one tool. They’re the perfect place for us to dig in next. We’ll look at the standard methods for judging a stock’s value and, later on, I’ll share a framework you can use to get an even clearer read on whether Eaton is worth your investment right now.
Eaton scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Discounted Cash Flow (DCF) model is a widely used method for valuing companies by projecting their future cash flows and discounting these amounts back to today’s value. This approach helps investors estimate the intrinsic worth of a business based on expectations about its future earnings power.
For Eaton, analysts estimate that the company’s latest twelve-month Free Cash Flow stands at $3.25 Billion. Looking ahead, projections suggest Free Cash Flow will grow to about $5.49 Billion by the end of 2029. It is important to note that only the first five years are based on direct analyst estimates. Figures further into the future are extrapolated from recent trends and industry expectations.
Based on these projections, the DCF model calculates Eaton’s intrinsic value per share at $151.65. When compared to the current share price, this implies the stock is trading at a 146.9% premium to its estimated fair value. In other words, according to this model, Eaton appears significantly overvalued at the moment.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Eaton may be overvalued by 146.9%. Find undervalued stocks or create your own screener to find better value opportunities.
For profitable companies like Eaton, the price-to-earnings (PE) ratio is a classic method for evaluating value. The PE ratio tells us how much investors are willing to pay today for a dollar of earnings, making it especially relevant for established, earnings-generating businesses.
What’s considered a “normal” or “fair” PE ratio really depends on two big factors: growth expectations and risk. Companies expected to grow earnings faster, or with less risk, can justify a higher PE than slower or riskier ones. Conversely, if the outlook is average or there are significant risks, the PE should be closer to the market or industry norm.
Currently, Eaton trades at a PE of 37.1x. For context, the average PE among its closest peers is about 46.3x, while the broader Electrical industry sits lower at 28.8x. This puts Eaton between its sector and its top rivals. This suggests the market prices in above-industry growth or quality. However, Simply Wall St’s “Fair Ratio” stands at 36.9x, which is tailored to Eaton specifically, factoring in its earnings growth rate, industry, profit margins, market cap, and unique risk profile.
The Fair Ratio is a more reliable guide than just comparing to peers or the broad industry average because it adjusts for the company’s individual strengths and challenges. With Eaton’s real PE nearly identical to its Fair Ratio, the stock looks fairly valued through this lens.
Result: ABOUT RIGHT
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative goes beyond the numbers, letting you combine your personal perspective on a company’s future (its story) with your forecasts for revenue, earnings, and margins. This approach leads to an informed fair value estimate.
With a Narrative, you link the company’s real-world story, like industry changes or management strategy, directly to a custom financial forecast and a resulting fair value. Narratives are straightforward to build and available to everyone on Simply Wall St’s Community page, where millions of investors share their own takes.
These Narratives help you decide when to buy or sell by visually comparing your Fair Value with the current Price, and they update dynamically whenever news or earnings are released so you stay relevant. For example, Eaton’s highest analyst Narrative uses aggressive growth in electrification and data center markets and projects a fair value of $440 per share, while the most bearish Narrative factors in risks from weaker auto segments or delayed integration, landing closer to $288. This reflects how different stories produce very different valuations.
Do you think there’s more to the story for Eaton? Create your own Narrative to let the Community know!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include ETN.
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