Power management company Eaton Corporation, PLC (ETN) has not been making headlines but has been growing steadily over the past years. The company designs, manufactures, markets and supplies drivetrains, powertrain systems and critical components for cars, light trucks and commercial vehicles, among others.
Its stock has gained 73% over the past three years and nearly 78% over the past year. It has operations across more than 175 countries. Several companies rely on it to solve some of their toughest electrical, hydraulic and mechanical power management challenges.
Amid recent market volatility, ETN has not only managed to pay a quarterly dividend but also increased it from its previous payout. ETN ended fiscal 2020 with a free cash flow of $2.60 billion, representing the upper end of its guidance range. So, we think it is favorably positioned to gain from increasing demand for electric energy efficient and environment-friendly solutions.
Here’s what we think could shape ETN’s performance in the near term:
Increasing Demand for EVs
With the growing climate change concerns, governments worldwide are implementing favorable policy measures for EVs because they emit less carbon dioxide than traditional, internal combustion vehicles. Consequently, the EV market is expected to grow at a CAGR of 41.5 % over the 2020 -2027 timeframe. With this, So, the demand of ETN’s services is expected to increase significantly.
ETN acquired Switzerland-based Green Motion SA on March 22. Green Motion is a leading designer and manufacturer of electric vehicle charging hardware and related software. ETN also completed the acquisition of Tripp Lite on March 17. Its complementary product offerings are expected to help expand ETN’s single-phase UPS business. And in February, ETN signed an agreement to acquire Cobham Mission Systems. The deal is expected to be closed in the second half of 2021.
Consistent Product Innovations
The company introduced its next-generation sodium-filled hollow-head valves on March 24. They are designed to help improve fuel economy, reduce emissions and increase performance in gas-powered engines. Also in March, ETN’s Vehicle Group launched an aftermarket ELocker differential for Toyota Tacoma midsize pickup trucks with manual transmissions. Its Vehicle Group also launched the ServiceRanger 4 Pro Plus software in January 2021.
In terms of trailing-12-month gross profit margin, ETN’s 30.5% is higher than the industry average 28.6%. Its trailing-12-month return on common equity of 9.1% and trailing-12-month return on total assets of 4.4% also compares favorably to the industry averages of 8.1% and 3.3%, respectively. Furthermore, in terms of trailing-12-month net income margin, the stock’s 7.9% is higher than the industry average 4%.
Favorable POWR Ratings
ETN has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. ETN has an A grade for Momentum, which is in sync with its 35.5% gains over the past six months and 15.1% gains over the past three months.
The stock has a B grade for Quality, consistent with its higher-than-industry profitability ratios. It has a B grade for Sentiment also, in sync with the favorable analyst sentiment.
Also, click here to access several other top-rated stocks in the same industry.
Operating for more than a century, ETN has adapted and evolved over the years with the changing technologies. Even though it hasn’t been making headlines, it has been growing steadily and making several profitable acquisitions. So, we think it is wise to bet on this under-the-radar stock now.
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ETN shares were trading at $139.27 per share on Thursday afternoon, up $0.99 (+0.72%). Year-to-date, ETN has gained 16.55%, versus a 7.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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