Eaton Corporation ETN shares are trading at a premium compared to the Zacks Manufacturing-Electronics industry. Its forward 12-month Price/Earnings of 22.57X is higher than the broader sector’s 18.39X and the Manufacturing-Electronics Industry’s 21.35X.

Eaton’s near-term prospects look bright, given its VGM Score of B. Stocks with a high VGM Score have the most attractive value, best growth and most promising momentum compared with peers.

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Eaton’s high-quality product offerings, global presence, and consistent R&D expenditures allow the company to create sustainable products. These enable the company to provide efficient power management solutions to its clients. Strong demand for its products also enables the company to deliver strong results quarter after quarter.

ETN surpassed expectations in the last four quarters, with an average earnings surprise of 3.63%, courtesy of solid financial and operational performance from most of its segments.

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Factors Contributing to Eaton’s Stable Performance

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. Courtesy of ongoing orders, Eaton’s backlog increased 29%, 16% and 16% in Electrical Americas, Aerospace and Electric Global, respectively, on a rolling 12-month basis.

ETN completed two acquisitions in the first half of 2024, further strengthening its Electrical Americas and Electrical Global segment. Currently, demand for the electric vehicle (EV) charging infrastructure is on the rise globally and Eaton’s expertise can help it grab a larger market share in the fast-expanding EV charging business.

Eaton’s products are supplied to around 160 countries, which provides stability to the revenue generation ability of the company. This way the loss of a customer does 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 end-market conditions has been boosting orders and revenues.

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. Advance product development and upgrade of existing products allow ETN to maintain a strong position in different markets and countries it supplies its products to.

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 the growth cycle in the commercial aerospace and defense markets.

Earnings Estimates for Eaton Are Rising

Eaton now expects adjusted earnings per share in the range of $11.8-$12.20 for 2025 compared with $10.80 reported in 2024.

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The Zacks Consensus Estimate for ETN’s 2025 and 2026 earnings per share indicates year-over-year growth of 11.39% and 12.32%, 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 8.7% and 8.2%, respectively.

Eaton’s Capital Return Program

Eaton has been increasing shareholder value through dividend payments and share repurchases. In 2025, it expects free cash flow in the range of $3.7-$4.1 billion. Eaton continues to buy back shares, which has a positive impact on earnings. The company repurchased 7.8 million shares in 2024. It aims to buy back shares worth $2-$2.4 billion in 2025, which will boost its earnings per share.

ETN’s management has raised dividends six times in the past five years. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.31%, better than its industry’s yield of 0.67%. For more details on ETN’s dividend, kindly click here.

Eaton Stock Returns Higher Than Its Industry

Return on invested capital (ROIC) has hovered around 8% over the last few years and outperformed the industry average in the trailing 12 months. ROIC of ETN was 9.25%, compared with the industry average of 5.8%. The company has been investing effectively in profitable projects, which is evident from its ROIC.

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Eaton’s Price Performance

Eaton shares have lost 7.8% in the past year, narrower than its industry decline of 16.4%.

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Summing Up

Eaton continues to benefit from the strong contribution of its organic assets. Reindustrialization and megatrends worldwide create fresh demand for ETN’s products. The company is also gaining from rising demand from data centers. ETN’s R&D investment allows it to upgrade its products and meet the demand of its clients.

The stock currently has a Zacks Rank #3 (Hold), and it is trading at a premium. Therefore, those looking to invest should wait for a better entry point. Those who already own the stock can stay invested.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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This article originally published on Zacks Investment Research (zacks.com).

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