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Wondering if Eaton’s stock is still a good value after its recent surge? Let’s dig into what’s driving the buzz and whether the price matches up.
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Over the last year, Eaton’s shares have climbed 15.4%, and over the past three years, they’ve rocketed up by 151.6%. These aren’t numbers that go unnoticed by savvy investors.
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Much of this momentum has been fueled by headlines about Eaton’s strategic expansion into energy management and ongoing investments in sustainable infrastructure. Continued optimism from analysts about the company’s exposure to growth industries keeps investor sentiment strong.
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On our valuation scorecard, Eaton notches a 1 out of 6 for being undervalued, which means there is plenty to unpack when it comes to how the market is currently pricing the stock. Stay tuned as we walk through several ways to assess value and reveal a perspective most investors miss at the end.
Eaton scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow (DCF) model estimates what a company is worth by projecting its future cash flows and discounting them back to today’s value. This approach helps investors gauge whether the current market price reflects the business’s cash-generating ability.
For Eaton, analysts estimate the company generated $3.25 Billion in Free Cash Flow over the last twelve months. Looking ahead, forecasts suggest Free Cash Flow will steadily grow, reaching $5.49 Billion by 2029. While specific analyst estimates cover only the next five years, projections beyond that are modeled by Simply Wall St. This offers a decade-long view of the company’s cash flow trajectory.
Based on these projections and the DCF approach, Eaton’s estimated intrinsic value per share is $150.75. Compared to recent trading prices, this suggests the stock is 153.1% overvalued.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Eaton may be overvalued by 153.1%. Discover 832 undervalued stocks or create your own screener to find better value opportunities.
The Price-to-Earnings (PE) ratio is a commonly used and effective metric for evaluating profitable companies like Eaton, as it directly relates the market price to the company’s earnings power. For established businesses with steady profits, the PE ratio can provide a quick snapshot of how much investors are willing to pay for each dollar of earnings.
It’s important to remember that growth expectations and risk also play a big part in determining what a “normal” or “fair” PE should be. Faster-growing, lower-risk companies tend to justify higher PE ratios, while more stagnant or riskier businesses often trade at lower multiples.
Eaton currently trades at a PE ratio of 37.84x, compared to the electrical industry average PE of 31.78x and a peer average of 45.38x. Rather than relying solely on industry or peer comparisons, Simply Wall St calculates a proprietary “Fair Ratio” for Eaton, which is based on factors such as earnings growth, profit margins, market capitalization, and risk profile. Eaton’s Fair PE Ratio stands at 37.21x. This individualized measure offers a more tailored benchmark than broader industry averages, helping investors gauge value more precisely by reflecting the company’s unique fundamentals.
Since Eaton’s actual PE is just slightly above its Fair Ratio, the stock appears to be fairly valued compared to its underlying business quality and prospects.
Result: ABOUT RIGHT
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your unique story about how a company’s future might unfold, combining your beliefs and insights with real financial forecasts like revenue growth, profit margins, and fair value estimates. Narratives link a company’s story to its numbers, making it easy to see exactly how your viewpoint drives your investment decisions. On Simply Wall St’s Community page, which is home to millions of investors, anyone can build or explore Narratives for Eaton and thousands of other stocks. By comparing your Narrative’s fair value to Eaton’s live price, you can easily decide if now is the right time to buy or sell. In addition, Narratives update automatically whenever new information, such as fresh news or earnings results, comes in, helping you stay ahead of the market. For example, some investors have a bullish Narrative for Eaton, forecasting a price as high as $440 based on rapid data center growth and margin expansion, while others take a more cautious view, seeing fair value near $288, reflecting risks from weaker vehicle segments and demand volatility.
Do you think there’s more to the story for Eaton? Head over to our Community to see what others are saying!
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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