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If you are wondering whether Eaton’s current share price still offers value, you are not alone. This article is designed to help you make sense of what that price might imply.
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Eaton’s stock last closed at US$347.32, with returns of 2.8% over the past 7 days, 8.0% over 30 days, 6.1% year to date, 10.8% over 1 year, 122.0% over 3 years, and 216.1% over 5 years. These figures naturally raise questions about what is already priced in and what is not.
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Recent coverage around Eaton has kept attention on the stock, including ongoing discussion of its role in the broader capital goods sector and how investors are treating companies in this space. This context helps explain why the share price has remained in focus for both new and existing shareholders.
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Right now, Eaton scores 2 out of 6 on our valuation checks. We will look at a range of methods to see what that might signal about the current price, and then return at the end with a framework that can help you think about value more clearly.
Eaton scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and discounting them back to today’s value. It is essentially asking what all those future dollars are worth in today’s terms.
For Eaton, the model uses last twelve month free cash flow of about US$3.27b as a starting point, then applies a 2 Stage Free Cash Flow to Equity approach. Analysts provide explicit estimates for the next few years, and beyond that Simply Wall St extrapolates cash flows. By 2030, projected free cash flow reaches US$7.01b, with a series of discounted annual estimates between 2026 and 2035 used to build up the valuation.
When all those projected cash flows are discounted and combined, the DCF model arrives at an estimated intrinsic value of around US$225.49 per share. Compared with the recent share price of US$347.32, this points to the stock trading at roughly a 54.0% premium to the DCF estimate. This indicates that the market is paying well above this cash flow based value.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Eaton may be overvalued by 54.0%. Discover 877 undervalued stocks or create your own screener to find better value opportunities.
For a profitable company like Eaton, the P/E ratio is a straightforward way to see how much you are paying for each dollar of earnings. Investors usually accept a higher P/E when they expect stronger growth or see lower risk in the business, while slower growth or higher perceived risk tends to justify a lower, more cautious P/E.
Eaton currently trades on a P/E of 34.36x. That sits above the Electrical industry average of about 32.86x, but below the peer group average of 49.21x. On the surface, that puts Eaton somewhere between a broad sector read and how the market is pricing closer peers.
Simply Wall St’s Fair Ratio for Eaton is 37.10x. This is its proprietary estimate of what a “normal” P/E could look like given factors such as earnings growth, industry, profit margins, market cap and risk profile. This is more tailored than a simple comparison against peers or the sector, because it adjusts for company specific characteristics rather than assuming one size fits all. With Eaton’s current P/E of 34.36x sitting below the Fair Ratio of 37.10x, this framework points to the shares looking undervalued on an earnings multiple basis.
Result: UNDERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1417 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply your story about Eaton, written in numbers, where you set what you think is a fair value and plug in your own expectations for future revenue, earnings and profit margins. The power of a Narrative is that it connects three pieces in one place: the company’s story, a clear financial forecast and a resulting fair value estimate. On Simply Wall St, Narratives sit inside the Community page, so you can quickly build or follow them without needing a spreadsheet or a finance degree. Once you have a Narrative, you can compare its Fair Value to Eaton’s current share price to help you decide whether it looks like a potential buy, hold, or sell for you. Narratives update automatically when fresh information arrives, such as new earnings reports or major news, so your view is always linked to current data. For example, some Eaton Narratives on the platform assume a much higher fair value than today’s price while others point to a materially lower figure, reflecting very different expectations about the company’s future.
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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