On Wednesday, Evercore ISI adjusted its stance on Eaton Corporation (NYSE:ETN) stock, moving from an Outperform rating to In Line. Accompanying this downgrade, the firm also increased the price target for Eaton's shares to $389.00, up from the previous target of $333.00.
The revision comes despite Eaton's strong performance over the past two years, during which the company stood out with its differentiated organic sales growth, primarily driven by demand in data centers and utilities. While many competitors saw organic sales growth slow or decline, Eaton's sales expanded.
However, according to the analyst, this robust outperformance has brought the stock to a point where, even with above-consensus estimates, there is limited potential for further upside.
The analyst's projection applies a 32 times multiple to Eaton's estimated 2025 earnings per share (EPS) and a 23 times multiple to its estimated 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA).
Despite Eaton outgrowing Vertiv in areas where they compete, the analyst pointed out that Vertiv might enhance its growth outlook at its analyst day on Monday, November 18, 2024, especially in thermal management—a market Eaton does not serve.
The report suggests that Eaton's current valuation leaves little room for the stock to outperform in the near term. It also anticipates that while the first half of 2025 may be steady, the potential for mergers and acquisitions to expand Eaton's presence in its strongest verticals could emerge after the new CEO outlines the company's five-year targets beyond March 2025.
In conclusion, Evercore ISI sees the current valuation as a "breather" for Eaton's stock, indicating that it may have reached its peak performance for the time being.
In other recent news, Eaton Corporation has announced several significant developments. The company reported robust financial results, including a record adjusted EPS of $2.84 and record segment margins.
Despite a 7% revenue decline in the Vehicle segment and a slight 2% increase in e-mobility sales, Eaton's overall performance remains strong. The company plans to invest $1.5 billion in capital expenditures, focusing on high-growth areas.
Eaton has also undergone a leadership transition, appointing Omar Zaire as president for the Corporate and Electrical Sector in the Europe, Middle East, and Africa (EMEA) region. Zaire brings extensive experience to the position, with 27 years in the electrical industry and 16 years at Eaton.
In terms of analyst coverage, Bernstein initiated coverage on Eaton with an Outperform rating, predicting robust growth for its electrical business. Oppenheimer maintained its Perform rating on Eaton, citing a mix of strong and moderate business drivers. Morgan Stanley (NYSE:MS) increased its price target for Eaton's stock from $370.00 to $385.00, maintaining an Overweight rating.
These are among the recent developments at Eaton Corporation.
InvestingPro Insights
Eaton Corporation's recent performance aligns with several InvestingPro metrics and tips, providing additional context to Evercore ISI's analysis. The company's market capitalization stands at an impressive $145.82 billion, reflecting its significant presence in the Electrical Equipment industry. Eaton's revenue for the last twelve months as of Q3 2024 reached $24.61 billion, with a solid revenue growth of 8.81% over the same period.
Two relevant InvestingPro Tips highlight Eaton's financial strength and market position. Firstly, Eaton "has maintained dividend payments for 54 consecutive years," demonstrating long-term stability and commitment to shareholder returns. Secondly, the company is "trading near its 52-week high," which corroborates Evercore's observation about limited upside potential.
The current P/E ratio of 39.06 and Price to Book ratio of 7.63 support Evercore's view on Eaton's valuation, suggesting the stock may be trading at a premium. This aligns with the InvestingPro Tip indicating that Eaton is "trading at a high earnings multiple."
For investors seeking more comprehensive analysis, InvestingPro offers 21 additional tips for Eaton Corporation, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.