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Wondering if Eaton’s latest share price gives you a shot at value, or if you might be paying too much? You are not alone. Many investors are keen to know if now is the right time to buy or hold.
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Eaton’s stock has slipped 1.1% over the last week and dropped 10.0% in the past month. It has still managed to record a 2.9% gain year-to-date, showing a mix of resilience and near-term volatility.
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Recent news has highlighted growing momentum around Eaton’s role in power management and electrical solutions. Analysts have noted increased infrastructure spending and demand for electrification worldwide. Announcements about future-ready energy projects have also influenced investor sentiment and may help support the stock’s long-term narrative.
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On value, Eaton scores a 3 out of 6 on our valuation checklist. This suggests the stock may be undervalued in some key areas. In the next sections, we will explain how we arrive at these numbers and present a more complete way to assess if the price is appropriate.
Find out why Eaton’s -7.0% return over the last year is lagging behind its peers.
The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future free cash flows and discounting them back to today’s value. This gives investors a sense of intrinsic worth based on actual expected performance rather than recent price movements.
For Eaton, this approach starts with its current Free Cash Flow of $3.27 billion. Analyst estimates suggest Free Cash Flow could climb to $5.49 billion by 2029, with projections for subsequent years continuing to grow, but at a slower rate based on extrapolation by Simply Wall St. These forecasts rely on the company’s ongoing role in power management as well as expected trends in global electrification.
Using these cash flow projections, Eaton’s estimated intrinsic value comes to $154.15 per share. When compared to its current share price, the model suggests the stock is trading at a premium, with a discount of -121.7%. This indicates Eaton’s share price is considered significantly overvalued according to the DCF approach.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Eaton may be overvalued by 121.7%. Discover 927 undervalued stocks or create your own screener to find better value opportunities.
The Price-to-Earnings (PE) ratio is a widely recognized method for valuing profitable companies like Eaton. It connects the company’s market value to its earnings, making it easier for investors to understand what they are paying for each dollar of profit. Choosing PE is especially appropriate for companies with a strong history of profitability because it directly reflects investor confidence in ongoing and future earnings power.
Growth prospects and risk levels both play a big role in what makes a “fair” PE ratio. Fast-growing companies can command higher multiples, while those facing more risk or with slower growth tend to trade at lower PE ratios. For Eaton, the current PE stands at 33.8x. This is higher than the Electrical industry average of 30.8x, but sits well below the average for its selected peers at 44.4x.
Simply Wall St offers a proprietary “Fair Ratio” metric to refine this evaluation further. Unlike basic comparisons with industry averages or peers, the Fair Ratio reflects a combination of factors such as Eaton’s projected earnings growth, its profit margins, risk profile, market cap, and specific industry trends. For Eaton, the Fair Ratio is 38.3x, incorporating both the company’s future outlook and its specific risk-return profile.
Since Eaton’s current PE of 33.8x is moderately below its Fair Ratio of 38.3x, this suggests the stock is undervalued from a PE perspective when factoring in sustainable growth and risk-adjusted performance.
Result: UNDERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 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 a simple, approachable way to connect your unique perspective on a company’s future, such as your own estimates for Eaton’s revenue, margins, and fair value, to a clear story that explains how and why you see the company’s path unfolding.
With Narratives, you move beyond just crunching numbers or chasing headlines. Each Narrative ties Eaton’s story to specific financial forecasts and calculates an objective fair value, all in one seamless tool on Simply Wall St’s Community page, used by millions of investors. Narratives empower you to instantly see whether your fair value for Eaton suggests the stock is attractive or unattractive compared to today’s price, and automatically update your analysis as new news or earnings are released.
For example, one investor might build a bullish Narrative on Eaton, focusing on rapid data center expansion and targeting a fair value of $440 per share. Another could set a more conservative Narrative emphasizing cyclical risks, arriving at $288 per share. Each is supported by its own assumptions, but made fully transparent via Narratives so you can track, compare, and refine your decisions in real time.
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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