Eaton Corporation ETN is trading above its 200-day simple moving average (SMA), signaling a bullish trend. Organic growth and continued investments in research and development of new products are assisting the company in providing efficient power management solutions to its clients.

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ETN’s 200-Day SMA Chart

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The 200-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as it is the first marker of a stock’s uptrend or downtrend.

Eaton shares have rallied 42.8% in the past year, outperforming its industry, sector and Zacks S&P 500 Composite’s return in the same time frame.

Price Performance (One Year)

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Should you consider adding ETN stock to your portfolio only based on positive price movements? Let’s delve deeper and find out factors that can help investors decide whether it is a good entry point to add ETN stock to their portfolio.

Factors Acting as Tailwinds for Eaton

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 register an increase in the backlog. Due to its high-quality product offering, the company has already won more than $1 billion in new orders. It is in active negotiations on another $1 billion of electrical content on a small subset of these total projects. Courtesy of ongoing orders, Eaton’s backlog increased 26%, 14% and 19% in Electrical Americas, Aerospace and Electric Global, respectively, on a rolling 12-month basis.

Eaton has laid out a 10-year plan that includes a $3 billion investment in research and development (R&D) programs, allowing 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. The ongoing investment will allow ETN to develop new advanced products and upgrade existing products, allowing it to maintain a strong position in different markets and countries where it supplies its products.

Eaton operates in several markets globally, and strategic acquisitions allow it to expand into new markets and enhance its revenue stream. Demand for electric vehicle (EV) charging infrastructure is on the rise globally, and Eaton, with its expertise, can help it grab a larger market share in the fast-expanding EV charging business.

ETN’s products are supplied to around 175 countries, and most importantly, this 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 serve a broad customer base.

Eaton’s Return on Equity Better Than Industry

Eaton’s trailing 12-month return on equity is 21.97%, ahead of the industry average of 10.24%. Return on equity (ROE) measures how efficiently the company is utilizing its equity funds to generate profits. The current ROE of Eaton indicates that it is using shareholders’ equity more resourcefully compared to its peers and generating a better return.

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Eaton’s Earnings Estimates Are Moving North

Eaton now expects adjusted earnings per share in the range of $10.75-$10.81 for 2024, indicating an increase of 18% at the midpoint from the prior-year levels.

The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share implies year-over-year growth of 18.42% and 12.26%, respectively. The Zacks Consensus Estimate for fiscal 2025 and 2026 earnings per share of Emerson Electric Co. EMR, another operator in this space, indicates year-over-year growth of 8.2% and 8.07%, respectively.

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Eaton Raises Shareholder 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 nine months of 2024, it repurchased 5.3 million shares for a total of nearly $1.63 billion.

ETN’s management has raised dividends for 15 consecutive years and increased its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.10%, better than its industry’s yield of 0.46%. For more details on ETN’s dividend, kindly click here.

Eaton Stock Trading at a Premium

Eaton shares are trading at a premium compared to its industry. The company’s forward 12-month Price/Earnings of 28.05X is higher than its industry’s 24.4X.

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Eaton: In a Nutshell

Eaton continues to benefit from stable contributions from its organic assets spread across the globe. Strategic acquisitions are expanding its product portfolio and market reach.

Eaton’s positive movement in earnings estimates, strong return on assets and rising backlog make the stock attractive.  However, the stock currently has a Zacks Rank #3 (Hold), and it is trading at a premium. Investors should hold back the stock and look for a better entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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