Back to top

Image: Bigstock

Eaton (ETN) Gains From Wide Market Reach Amid Pandemic Woes

Read MoreHide Full Article

Eaton Corporation (ETN - Free Report) is gaining from its wide market reach, inorganic ventures, share buybacks and R&D expenditures. These, in turn, will help it create new products that are likely to aid customers in efficient power management.

This Zacks Rank #3 (Hold) stock delivered a positive earnings surprise of 11.92%, on average, in the last four quarters. The long-term earnings growth (three to five years) is currently pegged at 11%.  The Zacks Consensus Estimate for 2021 earnings has moved up 3.3% in the past 30 days to $4.99 per share.

Tailwinds

Eaton supplies its products to around 175 countries. This, in a sense, provides stability to the revenue generation ability of the company, as the loss of a customer will not have any significant impact on revenues and margins. Moreover, a diversified product portfolio, offering energy efficient solutions, helps to serve a wide customer base.

In addition, Eaton’s strategic acquisitions allow it to foray into new markets, expand operations and enhance revenue stream. Acquisitions made by the company contributed 2% to total third-quarter revenues.

Year-to-date, the company repurchased 15.9 million shares worth $1,477 million. The lower shares outstanding will boost earnings of the company over the long run.

For the first nine months of 2020, R&D expenses were $411 million compared with $454 million in the year-ago period. Eaton has laid out a 10-year plan that includes $3 billion investment in R&D programs, which will allow the company to create sustainable products over this period of time. The products supplied by Eaton have been deemed to be critical part of the global infrastructure and are absolutely essential in the crisis situation.

Headwinds

Due to prevailing economic uncertainty across the globe as a result of the COVID-19 pandemic, the company expects a decremental margin of 25% for the fourth quarter. Weakness in some of the end markets is likely to persist and reduce its margins from 2019.

Eaton, which utilizes a variety of raw materials and components in businesses, has to depend on others for the supply of raw materials. Hence, any significant shortage, price increase or supplier insolvencies could increase operating costs and adversely impact its competitive position.

Price Performance

In the past 12 months, shares of Eaton have gained 31.3% compared with the industry’s 21.1% rally.

Stocks to Consider

Some better-ranked stocks from the same industry are Rexnord Corporation (RXN - Free Report) , A.O. Smith Corporation (AOS - Free Report) and Regal Beloit Corporation (RBC - Free Report) . All stocks are currently having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term (three to five years) earnings growth for Rexnord, A.O. Smith and Regal Beloit is projected at 8.4%, 9%, and 10%, respectively.

The Zacks Consensus Estimate for Rexnord, A.O. Smith and Regal Beloit’s 2021 earnings has moved 6.3%, 5.3% and 14.6% upward, respectively, in the past 60 days.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>