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If you are wondering whether Eaton’s current share price lines up with its underlying worth, this article will walk you through what the numbers say and what they might mean for your own research.
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Eaton recently closed at US$332.38, with returns of 0.1% over 30 days, 1.5% year to date, a 1% decline over the last year, and a very large gain of 188.2% over five years that may catch your eye.
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Recent coverage has focused on Eaton’s role as a major player in capital goods and electrical equipment, as investors track how large industrial names fit into long term infrastructure and electrification themes. This backdrop helps explain why some investors are revisiting the stock after such strong multi year returns, even as shorter term moves have been more muted.
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Eaton currently has a valuation score of 2 out of 6, reflecting the checks where it screens as undervalued. Next we will look at how different valuation methods arrive at that score, followed by a broader way to think about what valuation really means for you.
Eaton scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A DCF model estimates what a business could be worth by projecting its future cash flows and then discounting those amounts back to today, so you can compare that value to the current share price.
For Eaton, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in US$. The latest twelve month free cash flow is about US$3.27b. Analysts provide explicit forecasts for the next few years, and Simply Wall St then extrapolates further out. The model shows projected free cash flow of US$7.01b in 2030. Each of the yearly projections is discounted back to today and summed to get an overall estimate of equity value.
This DCF exercise results in an estimated intrinsic value of about US$236.29 per share. Compared with the recent share price of US$332.38, the model implies that Eaton is roughly 40.7% above this DCF estimate, which points to a rich valuation on this specific cash flow view.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Eaton may be overvalued by 40.7%. Discover 884 undervalued stocks or create your own screener to find better value opportunities.
For a profitable business like Eaton, the P/E ratio is a straightforward way to see how much investors are paying for each dollar of earnings. It connects directly to what you get as a shareholder, the company’s profits, which is why it is often the go to multiple.
What counts as a “normal” P/E depends on how the market views a company’s growth prospects and risks. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually points to a lower one.
Eaton currently trades on a P/E of 32.88x. That is close to the Electrical industry average of 32.20x, and below the peer group average of 46.78x. Simply Wall St’s “Fair Ratio” for Eaton is 38.18x. This is a proprietary estimate of what the P/E could be given factors such as earnings growth profile, profit margins, industry, market cap and specific risks.
This Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for those company specific features rather than assuming all Electrical stocks deserve the same multiple. Since Eaton’s current P/E of 32.88x sits below the Fair Ratio of 38.18x, this framework points to the shares trading at a discount on an earnings basis.
Result: UNDERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach a clear story about Eaton to the numbers by linking your view of its future revenue, earnings and margins to a financial forecast. This turns that into a fair value you can compare with the current price to decide whether the stock looks attractive or expensive. That fair value is then automatically updated when new information such as news or earnings arrives. One investor might build a bullish Eaton Narrative around data center and thermal demand with a fair value closer to the US$440 high analyst target. Another might focus more on risks in vehicle and eMobility segments and use assumptions that leave them nearer the US$288 low target. All of this happens within an accessible Community page used by millions of investors who want a simple way to connect story, forecast and price.
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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