Eaton Corp plc (NYSE: ETN)

Sector: Industrials Industry: Specialty Industrial Machinery CIK: 0001551182
Market Cap 153.13 Bn
P/B 8.13
P/E 38.99
P/S 5.75
ROIC (Qtr) 13.27
Div Yield % 0.80
Rev 1y % (Qtr) 10.13
Total Debt (Qtr) 11.22 Bn
Debt/Equity (Qtr) 0.60
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About

Eaton Corporation plc, known by its ticker symbol ETN, is a power management company that has been operating for over a century. With a revenue of $23.2 billion in 2023, Eaton serves customers in more than 160 countries, making it a global player in the industry. Eaton's main business activities revolve around providing electrical products and systems, aerospace systems, vehicle systems, and eMobility solutions. The company operates in various segments, including Electrical Americas and Electrical Global, Aerospace, Vehicle, eMobility, and Hydraulics....

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Investment thesis

Bull case

  • Operating cash flow of 4.10B provides exceptional 19.27x coverage of interest expenses 213M, showing strong debt service capability.
  • Operating cash flow of 4.10B provides exceptional 1368x coverage of minority interest expenses 3M, showing strong core operations.
  • Robust free cash flow of 3.38B exceeds capital expenditure of 728M by 4.64x, indicating strong organic growth funding capability.
  • Retained earnings of 10.17B provide full 1.09x coverage of long-term debt 9.32B, indicating strong internal capital position.
  • Robust tangible asset base of 19.71B provides 7.42x coverage of working capital 2.66B, indicating strong operational backing.

Bear case

  • Operating cash flow of 4.10B barely covers its investment activities of (1.05B), with a coverage ratio of -3.89, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • With cash reserves of 328M against inventory of 4.61B, the 0.07 cash-to-inventory ratio suggests potential liquidity risks if inventory turnover slows, particularly concerning given current supply chain volatilities.
  • Operating cash flow of 4.10B provides thin coverage of dividend payments of (1.59B) with a -2.58 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Investment activities of (1.05B) provide weak support for R&D spending of 794M, which is -1.33x, suggesting potentially insufficient investment in innovation relative to other capital deployment.
  • Cash reserves of 328M provide limited coverage of acquisition spending of (1.52B), which is -0.22x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.

Segments Breakdown of Revenue (2024)

Geographical Breakdown of Revenue (2024)

Peer comparison

Companies in the Specialty Industrial Machinery
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 GEV GE Vernova Inc. 224.93 Bn 194.57 6.14 0.00 Bn
2 ETN Eaton Corp plc 153.13 Bn 38.99 5.75 11.22 Bn
3 PH Parker-Hannifin Corp 135.87 Bn 165.29 12.09 9.87 Bn
4 EMR Emerson Electric Co 111.68 Bn 47.10 4.65 13.41 Bn
5 ITW Illinois Tool Works Inc 86.68 Bn 28.27 5.40 8.97 Bn
6 CMI Cummins Inc 82.13 Bn 28.89 2.44 7.55 Bn
7 AME Ametek Inc/ 53.79 Bn 36.34 7.27 2.28 Bn
8 ROK Rockwell Automation, Inc 43.80 Bn 44.24 5.11 3.68 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 4.04 2.28
EV to Cash from Ops. EV/CFO 40.04 37.14
EV to Debt EV to Debt 14.64 34.39
EV to EBIT EV/EBIT 32.77 27.71
EV to EBITDA EV/EBITDA 27.26 25.34
EV to Free Cash Flow [EV/FCF] EV/FCF 48.67 133.36
EV to Market Cap EV to Market Cap 1.07 1.04
EV to Revenue EV/Rev 6.17 39.88
Price to Book Value [P/B] P/B 8.13 6.22
Price to Earnings [P/E] P/E 38.99 143.63
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 2.47 2.57
Dividend Payout Ratio % Div Payout % (Qtr) 40.40 15.73
Dividend per Basic Share Div per Share (Qtr) 3.12 0.91
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 35.93 82.53
Interest Coverage Int. cover (Qtr) 23.54 12.34
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -5.51 -45.99
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -30.66 118.48
Dividend Growth (1y) % Div 1y % (Qtr) -15.22 10.01
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 6.12 -283.03
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 9.62 -36.87
EBIT Growth (1y) % EBIT 1y % (Qtr) 9.07 -80.72
EBT Growth (1y) % EBT 1y % (Qtr) 7.12 -120.93
EPS Growth (1y) % EPS 1y % (Qtr) 6.36 -39.22
FCF Growth (1y) % FCF 1y % (Qtr) 1.14 85.55
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 9.01 0.87
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.66 0.62
Cash Payout Ratio Cash Payout (Qtr) 0.33 0.10
Cash Ratio Cash Ratio (Qtr) 0.03 3.01
Current Ratio Curr Ratio (Qtr) 1.28 4.97
Debt to Equity Ratio Debt/Equity (Qtr) 0.60 0.38
Interest Cover Ratio Int Coverage (Qtr) 23.54 12.34
Times Interest Earned Times Interest Earned (Qtr) 23.54 12.34
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 22.50 -7,291.27
EBIT Margin % EBIT Margin % (Qtr) 18.83 -7,413.30
EBT Margin % EBT Margin % (Qtr) 18.03 -9,015.79
Gross Margin % Gross Margin % (Qtr) 38.10 -32.61
Net Profit Margin % Net Margin % (Qtr) 14.70 -7,962.06