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Eaton's ROE Exceeds Industry at 21.45X: Time to Buy the Stock?
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Eaton Corporation’s (ETN - Free Report) trailing 12-month return on equity of 21.45% is better than the industry average of 10%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Organic growth and continued investment in research and development of new products are assisting the company in providing efficient power management solutions to its clients. Expansion of existing assets and strategic acquisitions are further expanding its market reach.
Eaton has a diversified product portfolio offering, which provides energy-efficient solutions to its broad customer base, ETN’s ongoing investments to upgrade the products and create new products allow the company to expand its operation and widen its revenue base.
Eaton’s Return on Equity Better Than Industry
Image Source: Zacks Investment Research
Courtesy of its stable performance, Eaton’s shares have gained 80.1% in the last year, outperforming its industry, sector and Zacks S&P 500 Composite’s return in the same time frame.
Eaton Outperforms Industry, Sector & S&P 500 Last Year
Image Source: Zacks Investment Research
The chart below indicates that ETN shares are trading above the 50-day and 200-day simple moving average, indicating a bullish trend.
Image Source: Zacks Investment Research
Factors Acting as Tailwind for ETN Stock
Eaton has laid out a 10-year plan that includes a $3 billion investment in research and development (R&D) programs, which will allow the company to create sustainable products. Eaton’s approach to R&D is focused on leveraging technology to design solutions that meet the needs of its customers today and into the future. New advance product development and upgrade of existing products allow ETN to keep a strong position in different markets and countries across the globe it supplies its products.
Eaton’s products are supplied to around 175 countries, and most importantly, 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. Its diversified product portfolio offering energy-efficient solutions will help to serve a broad customer base.Ongoing improvement in the end market conditions is boosting orders and revenues.
Reindustrialization and megatrends worldwide create fresh demand for Eaton’s efficient power management products. Eaton continues to receive orders from its customers across the globe and continues to register an increase in backlog. Eaton’s backlog increased 27% in Electrical and 14% in Aerospace on a rolling 12-month basis.
The new AI training data centers, which require both high power and density, are creating a new opportunity for growth for this power management company. Eaton is strengthening its participation across the entire electrical power value chain and benefiting from momentum in data center and utility end markets, as well as a growth cycle in the commercial aerospace and defense markets.
Eaton’s Earnings Estimates are Moving North
Courtesy of strong performance in the first six months of 2024, Eaton projects adjusted earnings per share in the range of $10.65-$10.75 for 2024, indicating an increase of 17% at the midpoint from the prior-year levels.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share has moved up 0.7% and 11.9% in the last 60 days. The Zacks Consensus Estimate for 2024 and 2025 earnings per share of Powell Industries (POWL - Free Report) , another operator in this space, remained unchanged in the same time frame.
Image Source: Zacks Investment Research
Eaton Raises Shareholders’ Value
Eaton has been increasing shareholder value through dividend payments and share repurchases. In 2024, it expects free cash flow in the range of $3.4-$3.6 billion. In the first half of 2024, it repurchased 4.2 million shares for a total of $1.34 billion. The company has plans to repurchase shares in the range of $1.5-$2.5 billion in 2024.
ETN’s management has raised dividends for 15 consecutive years and raised its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.08%, better than its industry’s yield of 0.39%. For more details on ETN’s dividend, kindly click here.
Image Source: Zacks Investment Research
Final Take on Eaton
Eaton continues to benefit from the strong contribution of its organic assets. Effective power management is essential for the successful performance of a project and Eaton continues to provide the required solution to its customers. ETN’s R&D investment allows it to upgrade its product and meet the demand of its clients.
Given the positive movement in earnings estimates and strong return on capital Zacks Rank #2 (Buy), Eaton is currently an ideal candidate to add to your portfolio.
Image: Bigstock
Eaton's ROE Exceeds Industry at 21.45X: Time to Buy the Stock?
Eaton Corporation’s (ETN - Free Report) trailing 12-month return on equity of 21.45% is better than the industry average of 10%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Organic growth and continued investment in research and development of new products are assisting the company in providing efficient power management solutions to its clients. Expansion of existing assets and strategic acquisitions are further expanding its market reach.
Eaton has a diversified product portfolio offering, which provides energy-efficient solutions to its broad customer base, ETN’s ongoing investments to upgrade the products and create new products allow the company to expand its operation and widen its revenue base.
Eaton’s Return on Equity Better Than Industry
Image Source: Zacks Investment Research
Courtesy of its stable performance, Eaton’s shares have gained 80.1% in the last year, outperforming its industry, sector and Zacks S&P 500 Composite’s return in the same time frame.
Eaton Outperforms Industry, Sector & S&P 500 Last Year
Image Source: Zacks Investment Research
The chart below indicates that ETN shares are trading above the 50-day and 200-day simple moving average, indicating a bullish trend.
Image Source: Zacks Investment Research
Factors Acting as Tailwind for ETN Stock
Eaton has laid out a 10-year plan that includes a $3 billion investment in research and development (R&D) programs, which will allow the company to create sustainable products. Eaton’s approach to R&D is focused on leveraging technology to design solutions that meet the needs of its customers today and into the future. New advance product development and upgrade of existing products allow ETN to keep a strong position in different markets and countries across the globe it supplies its products.
Eaton’s products are supplied to around 175 countries, and most importantly, 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. Its diversified product portfolio offering energy-efficient solutions will help to serve a broad customer base.Ongoing improvement in the end market conditions is boosting orders and revenues.
Reindustrialization and megatrends worldwide create fresh demand for Eaton’s efficient power management products. Eaton continues to receive orders from its customers across the globe and continues to register an increase in backlog. Eaton’s backlog increased 27% in Electrical and 14% in Aerospace on a rolling 12-month basis.
The new AI training data centers, which require both high power and density, are creating a new opportunity for growth for this power management company. Eaton is strengthening its participation across the entire electrical power value chain and benefiting from momentum in data center and utility end markets, as well as a growth cycle in the commercial aerospace and defense markets.
Eaton’s Earnings Estimates are Moving North
Courtesy of strong performance in the first six months of 2024, Eaton projects adjusted earnings per share in the range of $10.65-$10.75 for 2024, indicating an increase of 17% at the midpoint from the prior-year levels.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share has moved up 0.7% and 11.9% in the last 60 days. The Zacks Consensus Estimate for 2024 and 2025 earnings per share of Powell Industries (POWL - Free Report) , another operator in this space, remained unchanged in the same time frame.
Image Source: Zacks Investment Research
Eaton Raises Shareholders’ Value
Eaton has been increasing shareholder value through dividend payments and share repurchases. In 2024, it expects free cash flow in the range of $3.4-$3.6 billion. In the first half of 2024, it repurchased 4.2 million shares for a total of $1.34 billion. The company has plans to repurchase shares in the range of $1.5-$2.5 billion in 2024.
ETN’s management has raised dividends for 15 consecutive years and raised its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.08%, better than its industry’s yield of 0.39%. For more details on ETN’s dividend, kindly click here.
Image Source: Zacks Investment Research
Final Take on Eaton
Eaton continues to benefit from the strong contribution of its organic assets. Effective power management is essential for the successful performance of a project and Eaton continues to provide the required solution to its customers. ETN’s R&D investment allows it to upgrade its product and meet the demand of its clients.
Given the positive movement in earnings estimates and strong return on capital Zacks Rank #2 (Buy), Eaton is currently an ideal candidate to add to your portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.