Company Reports

After taking a fresh look at Eaton, we’ve increased the firm’s fair value estimate to $281 per share from $229, stemming primarily from an economic moat rating upgrade from narrow to wide that extends the duration we believe Eaton can outearn its cost of capital. Eaton is a massive beneficiary of both short- and long-term trends that have created maintainable outsize demand for the company’s products. Some of these trends include the explosion of data center buildouts and energy grid investments positively inflecting demand for Eaton’s electrical products and the ongoing narrowbody plane shortage driving supernormal commercial aviation aftermarket growth.

Eaton manufactures mission-critical, highly engineered components designed to solve customer pain points in vital areas of the world’s infrastructure. A substantial portion of Eaton’s products are installed into customer operations and must be serviced or replaced at set intervals, which tends to carry higher margins than the sale of the equipment itself. Eaton boasts one of the largest global installed bases of electrical equipment, and trends such as rising regulatory standards for safety and efficiency, reshoring of supply chains within the US, and the explosion in data generation and energy consumption are fueling its growth.

Narrow-moat-rated Eaton reported robust second-quarter results as the company’s electrical Americas segment continued to benefit from increased data center demand. Eaton's revenue and earnings per share came in slightly above FactSet consensus estimates. On the back of these strong results, management increased guidance for the company and now expects full-year organic sales growth of 8%-9% and segment margins of 23.3%-23.7%, both of which represent a 50-basis-point increase relative to prior midpoint guidance. After incorporating this improved outlook into our model, we have raised our fair value estimate to $229 per share from $225. Nevertheless, Eaton's current stock price trades well above our increased fair value estimate. While the company has strong growth prospects, we think market expectations are overly optimistic.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Narrow-moat-rated Eaton turned in solid first-quarter results on the back of another strong performance in the electrical Americas segment, beating FactSet consensus estimates for revenue and earnings per share. Consolidated revenue grew an organic 8% to $5.9 billion, and adjusted EPS grew 28% to $2.40 per share. Segment operating margin also expanded 340 basis points to 23.1% for the quarter. As a result, management stepped up its full-year consolidated guidance to include organic growth of 7%-9% and an operating margin of 22.8%-23.2%. After revising our outlook for margins and regional share in the electrical segment, we have raised our fair value estimate to $225 per share from $220.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Narrow-moat-rated Eaton posted another impressive quarter of revenue growth and margin expansion to close out 2023, and the market appeared to be pleased, as the stock rallied over 7% on Feb. 1. Revenue of $6.0 billion and adjusted earnings per share of $2.55 both surprised to the upside relative to FactSet consensus estimates and were slightly above what we had originally baked in. Segment operating margin was up a full 200 basis points to 22.8% for the quarter. Given Eaton’s sustained margin performance and healthy growth outlook, we have raised our fair value estimate to $210 per share from $208.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Narrow-moat-rated Eaton put forth a solid third-quarter effort. Revenue of $5.88 billion was right in line with our expectations, but segment operating margin of 23.6% materially exceeded what we penciled in. These results, coupled with the company's higher guidance, prompted us to lift our midcycle operating margin estimate by 50 basis points. Eaton’s margin progression is so far ahead of its 2025 target that the goal now looks laughably low. We think high-single-digit long-term revenue growth driven by infrastructure-related spending and the aerospace recovery should translate to strong operating leverage. Even modest operating leverage means Eaton should hit close to a 23% operating margin by 2025. These changes caused us to raise our fair value estimate to $206 per share from $195.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

Narrow-moat-rated Eaton once again had a great quarter. We lift our fair value estimate to $195 from $176. Most of the increase is due to management’s revised 2023 earnings outlook (which we mostly agree with), with the incremental benefits coming nearly evenly from both our updated long-term targets and time value of money. Consolidated revenue rose to $5.87 billion, or 13% organically, while segment operating margins increased 150 basis points to 21.5%, during the quarter.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

After reviewing narrow-moat-rated Eaton’s first-quarter results, we've lifted our fair value estimate by 7% to $176 per share. The company is performing exceptionally well, pacing ahead of our expectations and its own medium-term targets. Even after revising our estimates, we think there’s some noticeable conservatism in parts of management’s guidance (though there’s also some optimism, like operating margin aspirations for the eMobility segment, which rarely seems to consistently break even).

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from the early innings of an energy supercycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

After reviewing narrow-moat-rated Eaton’s latest results and rolling our model, we lift our fair value estimate by over 6% to $164. While results were very much in line with expectations, Eaton’s guidance came out ahead of what we earmarked. Time value of money also made up a small portion of the raise. Eaton is tracking ahead of its 2025 targets, and we’re encouraged by management’s commentary on the call regarding its long-term secular growth drivers, despite market-related fears of a recession.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from the early innings of an energy super cycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its legacy industrial sector and its electrical sector.

After reviewing narrow-moat-rated Eaton’s third-quarter results, we see no reason to change our $154 fair value estimate. Revenue increased 8% on a reported basis to $5.3 billion, or 15% on an organic basis, fairly balanced between price and volume. Except for aerospace, which we were disappointed by, all of Eaton’s five remaining operating segments saw double-digit increases in organic top-line growth. Sales came in line-ball accurate with our expectations, though vehicle outperformed and made up the shortfall from aerospace.

Eaton is a mission-critical manufacturer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has successfully repositioned its portfolio to fully benefit from the early innings of an energy super cycle and capture secular trends like the global energy transition, digitization, and electrification. Eaton’s portfolio can be divided into two portions: its more legacy industrial sector and its electrical sector.