Dublin, Ireland-based Eaton Corporation plc (ETN) is a power management company that operates internationally through the broad segments of Electrical Americas and Electrical Global; Aerospace; and Vehicle.
The company’s financial growth over the years has been impressive. Over the past three years, ETN’s EBITDA and net income grew at CAGRs of 20.5% and 29.2%, respectively. Moreover, its EPS increased at 30% CAGR over the same period.
Following strong third-quarter results, with record quarterly adjusted EPS of $2.47 and operating cash flow of $1.10 billion, ETN raised its quarterly adjusted EPS guidance to between $8.95 and $9.05, up $0.25 at the midpoint, while its full-year operating cash flow guidance was increased by $100 million at the midpoint to $3.3-$3.7 billion.
Given its solid financial growth, let’s look at ETN’s key financial metrics to understand why the stock could be a solid buy now.
Unfolding Eaton Corporation's Financial Growth: An Analytical Review of Key Metrics from 2021 to 2023
The data series reflects the trailing-12-month net income of ETN from March 31, 2021, to September 30, 2023. The dataset reveals a general upward trend, encompassing both growth and momentary fluctuations.
- On March 31, 2021, ETN reported a net income of $1.43 billion.
- There is a continuous increase with a minor plateau in the third quarter of 2022, where the net income slightly drops to $2.29 billion from the $2.31 billion of the preceding quarter.
- The company has shown significant growth in the latter part of 2023. By June 30, 2023, the net income stands at $2.71 billion.
- The most recent data point, on September 30, 2023, reports a net income at a high of $2.99 billion.
Calculating the growth rate from the first to the last value indicates an approximate growth rate of 109%. This signifies a doubling of the net income in a span of two and a half years. In summary, despite periodic fluctuations, ETN has exhibited strong overall growth in its net income over the observed period.
The reported trailing-12-month revenue of ETN has observed a steady growth over the period from March 31, 2021, to September 30, 2023. Key Data Points:
- Starting on March 31, 2021, ETN's revenue was $17.76 billion.
- By June 30, 2022, there seems to be a remarkable roundabout as the revenue stagnated at approximately $19.78 billion.
- This stagnation is short-lived as by September 30, 2022, the revenue climbed slightly to $20.17 billion.
- ETN experienced a significant boost with a revenue of $20.75 billion at the close of 2022.
- The year 2023 ushered in an impressive growth trend, as seen in the consistently increasing revenue figures from March ($21.39 billion) through June ($22.05 billion) up to the end of September when the recorded revenue hit a high of $22.61 billion.
This data shows a consistent upward trajectory for ETN’s revenue over the evaluated period. The growth rate, as measured from the first value to the last value, is approximately 27%.
This suggests sound financial performance and seems to indicate a positive outlook for the company. It's noteworthy that the most recent data from 2023 depicts a stronger growth trend, affirming its importance.
The gross margin of ETN has shown a steady increase over the time period from March 2021 to September 2023.
- In March 2021, ETN recorded a gross margin of 30.80%.
- Over the next quarter, the gross margin increased to 32.20% in June 2021.
- The margins remained somewhat constant at around 32% for the rest of 2021 and the first three quarters of 2022.
- There was a slight increase to 33.20% by the end of December 2022.
- Growth continued in the first quarter of 2023, reaching 33.60%, followed by a significant growth to 34.50% in June 2023.
- The last reported value was a robust 35.50%, observed in September 2023.
From the first recording in March 2021 to the last in September 2023, the gross margin of ETN has seen a growth rate of approximately 4.70%. Trend-wise, although there were minimal fluctuations during the first few quarters, the emphasis on more recent data reveals an accelerating positive trend in the gross margin of ETN.
Below is a summary of the asset turnover trend and fluctuations of ETN based on the provided data:
Overall Trend:
The general trend shows an increase in asset turnover across the given period, with the most significant growth observable from March 2021 (0.558) to September 2023 (0.626). By measuring the last value from the first value, the growth rate is approximately 12%.
Yearly Breakdown:
- 2021: Initiated at 0.558 in March, there was a slight increase of 2.5%, reaching 0.572 in June. Despite a slight dip to 0.571 in September, the asset turnover value rose moderately to close the year at 0.565 in December.
- 2022: It held relatively steady for the first half of the year, hovering around 0.564-0.571. However, the latter half saw a more pronounced growth, jumping to 0.581 in September and ending the year even stronger at 0.594 in December.
- 2023: The increase trend continued into 2023, starting at 0.611 in March. A further bump was observed in June at 0.622, and the series ended in September 2023, with the asset turnover reaching its peak at 0.626.
Recent Emphasis:
Lately, ETN has seen sizable improvements in its asset turnover, particularly in 2023's readings, where values surpassed 0.6. The most recent reading in September 2023 notes the highest reported value at 0.626.
Analyzing Eaton Corporation's Steady Share Price Growth: Mid-2023 to Early-2024
The data provided captures the share price of ETN from July 21, 2023, to January 10, 2024.
- On July 21, 2023, the share price was $208.82.
- By July 28, 2023, the price had decreased slightly to $204.37, which shows a slight decrease in price over the week.
- The price then increased over the next four weeks to reach $219.83 by August 25, 2023.
- In September 2023, the price peaked at $232.62 on September 08, but towards the end of the month, it saw a downward trend, bringing it to $214.19 by September 29, 2023.
- October 2023 recorded a fluctuation in prices, with a dip to $197.07 by October 27, 2023, suggesting some instability.
- November 2023 witnessed a strong recovery as the share price rose to $227.83 by November 24, 2023.
- This upward trend continued into December 23, when the share price hit a peak for the year at $240.63 on December 29.
- In January 2024, there was a slight decline in the share price, down to $235.46 by January 5, but picked up again to $240.89 by January 10.
In summary, there's an overall increasing trend in ETN share prices from mid-2023 through early 2024, notwithstanding a few temporary dips. However, there is no clear evidence of an accelerating or decelerating trend.
The growth rate appears to be quite steady over this period. Please note that share prices can fluctuate due to a myriad of factors, and past performance is not necessarily indicative of future trends. Here is a chart of ETN's price over the past 180 days.
Evaluating Eaton Corporation's Performance: Tracing Growth, Quality, and Sentiment Trends
The POWR Ratings grade of ETN, a stock within the Industrial - Machinery category, has been largely consistent according to the data provided. A summary of its performance:
The ETN POWR grade has remained at a B (Buy) from the week of July 29, 2023, until the most recent date provided, January 11, 2024. Its grade is indicative of good overall performance. However, there was a brief period in the week of July 22, 2023, when it earned an A (Strong Buy) grade, which signifies superior performance.
Despite the consistent POWR grade, the rank in the category shows a gradual increase (decline in performance relative to other stocks) through the months. ETN's rank in its category increased from 14th place on July 15, 2023, to 28th by January 10, 2024.
The Industrial - Machinery category, in which ETN falls, contains 79 stocks in total, so even at its lowest rank, ETN is still positioned within the top half of all stocks in the category. Below are some key points in the data:
- July 15, 2023: ETN's POWR grade stood at a B (Buy); it ranked #14 in the category.
- July 22, 2023: Performance peaked with a POWR grade of A (Strong Buy) and an improved category rank of #13.
- August to December 2023: During this period, ETN consistently maintained a B (Buy) grade, but its rank steadily slipped down in the category.
- January 11, 2024: The latest value shows ETN's POWR grade remains at B (Buy), with a category rank of #25.
The POWR Ratings for ETN across its most noteworthy dimensions, Growth, Quality, and Sentiment, illustrate interesting trends.
Growth - The Growth rating remained at a high 88 from July to October 2023. However, there was an evident decrease in Growth thereafter, with the score dropping to 70 in November and further decreasing to 68 toward the end of December 2023 through January 2024.
Quality - The Quality score remains quite steady, showing a consistently high performance for ETN. There is minimal fluctuation in this dimension over time, hovering between 86 and 88 from July 2023 to January 2024.
Sentiment - After starting with an 86 rating in July 2023, the Sentiment dimension reported an increasing trend over the next months. Peaking at 93 in December 2023, there was a slight drop in January 2024 to a still-strong 91.
These patterns show that while Growth has seen a recent decline, Quality remains high, and Sentiment indicates an increase in favorable market opinions of Eaton Corporation plc.
How does Eaton Corporation plc (ETN) Stack Up Against its Peers?
Other stocks in the Industrial - Machinery sector that may be worth considering are Tennant Company (TNC), Taylor Devices, Inc. (TAYD), and Twin Disc, Incorporated (TWIN) - they have better POWR Ratings. Click here to explore more Industrial - Machinery stocks.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ETN shares were trading at $240.18 per share on Thursday morning, down $0.71 (-0.29%). Year-to-date, ETN has declined -0.27%, versus a -0.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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