Tuesday, Bernstein initiated coverage on Eaton Corporation (NYSE: NYSE:ETN) with an Outperform rating and set a price target of $382. The coverage highlights Eaton's strong position in key markets, with 70% of its sales linked to electrical equipment, and significant exposure to data centers, reshoring, and electric grid sectors.
The analyst from Bernstein predicts robust growth for Eaton's electrical business, forecasting a compound annual growth rate (CAGR) of 9% for the Americas over the next five years, which outpaces the street's expectation of a 6% CAGR. This optimism is underpinned by Eaton's ability to capitalize on the market's shift towards systems integration, a domain where the company is seen to excel.
Eaton's pricing power is also expected to remain strong, with the analyst projecting a new normal of 3% price increases, up from the 1% seen in periods of zero load growth. Additionally, the company is anticipated to achieve a 300 basis point growth in operating margin over the next five years, reaching 27%.
This improvement is expected to be driven by a favorable mix of products, cost-saving initiatives (with a potential $470 million cost reduction), and operating leverage.
For the fiscal year 2025, Bernstein forecasts Eaton's earnings per share (EPS) to reach $12.25, which is a 2% increase over the street's estimates. Looking further ahead, the analyst expects the EPS to grow to $23 by approximately 2030, representing a 14% CAGR, compared to the 10% projected by the street.
Based on these growth rates, the analyst suggests that the stock could be valued at $657, but when discounting back, the price target stands at $382, indicating a potential upside of 14%. This target is based on an implied price-to-earnings (P/E) ratio of 31 times the projected 2025 earnings.
In other recent news, Eaton Corporation has reported robust financial results, including record adjusted EPS of $2.84 and record segment margins. This strong performance has led the company to raise its full-year guidance for both metrics.
Eaton's Electrical Americas division reported a 25% year-over-year increase in backlog, marking a positive trend in orders. The company's early outlook for 2025 includes an anticipated market growth of 6-8% and segment incremental margins between 30-35%.
In addition, Morgan Stanley (NYSE:MS) has shown confidence in Eaton by increasing its price target for the company's stock from $370.00 to $385.00 and maintaining an Overweight rating. Oppenheimer has also sustained its Perform rating on Eaton, despite slight adjustments to the lower end of second-half expectations for 2024.
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.
These are among the recent developments at Eaton Corporation.
InvestingPro Insights
Eaton Corporation's strong market position and growth potential, as highlighted by Bernstein's analysis, are further supported by real-time data and insights from InvestingPro. The company's market capitalization stands at an impressive $130.86 billion, reflecting its significant presence in the electrical equipment industry.
InvestingPro data shows that Eaton has demonstrated robust financial performance, with a revenue of $24.61 billion in the last twelve months as of Q3 2024, and a revenue growth of 8.81% over the same period. This aligns well with Bernstein's optimistic growth projections for the company's electrical business.
Two key InvestingPro Tips underscore Eaton's financial strength and market position:
1. Eaton has raised its dividend for 15 consecutive years, indicating a strong commitment to shareholder returns and financial stability.
2. The company has a perfect Piotroski Score of 9, suggesting excellent financial health and operational efficiency.
These insights complement Bernstein's analysis of Eaton's pricing power and margin expansion potential. The company's consistent dividend growth and strong financial health provide additional support for the positive outlook on its future performance.
InvestingPro offers 19 additional tips for Eaton Corporation, providing investors with a comprehensive view of the company's financial health and market position. To access these insights and more, check out the full range of tips available on InvestingPro.
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