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Eaton (ETN) Up 13.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Eaton (ETN - Free Report) . Shares have added about 13.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Eaton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Eaton's Q4 Earnings and Revenues Surpass Estimates

Eaton Corporation reported fourth-quarter 2020 earnings of $1.28 per share, which surpassed the Zacks Consensus Estimate of $1.22 by 4.9%. However, earnings were down 6.6% year over year.

GAAP earnings for the reported quarter were $1.18 per share compared with $1.09 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to a one-time charge of 6 cents associated with acquisitions and divestitures, as well as 4 cents related to a multi-year restructuring program.

Revenues

Total quarterly revenues came in at $4,687 million, which beat the Zacks Consensus Estimate of $4,623 million by 1.4%. However, total revenues decreased 10.5% from the year-ago quarter.

For the reported quarter, organic sales were down 5% from the prior-year period. Divestiture of Lighting and Automotive Fluid Conveyance businesses resulted in an 8% decline in revenues. Nonetheless, acquired assets added 2% to fourth-quarter sales.

Segment Details

Electrical Americas’ total fourth-quarter sales were $1,703 million, down 18.5% from the year-ago level. The decline was due to the impact of the Lighting business divestiture and fall in organic sales.

Electrical Global’s total sales were $1,252 million, down 5% from the year-ago quarter. Organic sales were down 7% from the year-ago quarter, primarily due to deterioration in oil and gas and industrial markets. Positive currency translation offset the negatives by 2%.

Hydraulics’ total sales were $485 million, up 2% from the year-ago quarter. The revenue growth was due to an improvement in organic sales.

Aerospace total sales were $542 million, down 13% from the year-ago quarter. Organic sales were down 25% year over year, partially offset by an 11% sales increase from the acquisition of Souriau-Sunbank and 1% growth from the impact of positive currency translation.

Vehicle total sales were $620 million, down 7% from the year-ago quarter. Decline in organic sales, divestiture of the automotive fluid conveyance business and negative currency translation affected the results.

eMobility segment’s total sales were $85 million, up 13% year over year. The improvement in organic sales and positive currency translation boosted the top line of this segment.

Highlights of the Release

Selling and administrative expenses were $765 million, down 12.5% from the year-ago quarter.

The company’s fourth-quarter research and development expenses were $140 million, down 7.9% from the prior-year period. Interest expenses for the quarter were $36 million, down 14.3% from the year-ago period.

Orders in Hydraulics were up 25% year over year, while the same in Electrical Americas, Electrical Global, and Aerospace was down 1%, 6%, and 33%, respectively.

In 2020, the company returned $2.8 billion to shareholders, $1.6 billion through share repurchases and $1.2 billion through dividend.

Financial Update

Eaton’s cash was $438 million as of Dec 31, 2020 compared with $370 million in the comparable period of 2019.

As of Dec 31, 2020, the company’s long-term debt was $7,010 million, down from $7,819 million in the corresponding period of 2019.

Guidance

Eaton’s first-quarter 2021 earnings are expected in the range of $1.17-$1.27 per share. Acquisitions and divestitures are expected to negatively impact earnings by 5%, while favorable foreign currency translation is likely to boost the same by 2-3% in the first quarter.

Eaton expects organic revenue growth in the range of 4-6% in 2021. Segment operating margin for 2021 is expected in the range of 17-18%.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 17.59% due to these changes.

VGM Scores

Currently, Eaton has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Eaton has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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