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Eaton (ETN) Expands its Montreal Innovation Center: Time to Buy?
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Power management company Eaton Corporation (ETN - Free Report) recently announced expansion plans for its global Innovation Center near Montreal in Brossard, Quebec within a year of its opening. Eaton’s Innovation Center is focused on the research and development of distributed energy resources ("DER") technologies. After the expansion of the innovation center, it will provide hands-on training for digital technologies accelerating the energy transition, accelerating innovation and adoption of new solutions.
Currently, energy flows through the grid in more directions and through more devices than ever before, and this decentralization creates more complexities and challenges, it also creates new growth potential. Eaton’s Everything as a Grid approach is shaping a future where homeowners and businesses can reduce the cost and environmental impact of energy. Its flexible, intelligent power management ensures efficient usage of energy and creates new opportunities for everyone.
Shares of Eaton have gained 34.4% in the past year compared with its industry’s growth of 12.4%. The company has outperformed the S&P 500 in the same period.
Price Performance (One year)
Image Source: Zacks Investment Research
Importance of Eaton’s Montreal Innovation Center
Eaton opened its Montreal Innovation Center in November 2023. With a focus on developing advanced solutions to optimize DERs, the company is bringing together multiple disciplines, including cybersecurity, software, human-centered design and automation experts to maximize the impact of sustainable technology across industries.
At its Montreal Innovation Center, Eaton is collaborating closely with Hydro-Québec to develop and commercialize novel solutions like its next-generation microgrid system that will help simplify, accelerate and optimize the integration of renewables and energy storage for utilities, buildings and industry. Eaton’s decision to expand this innovation center will enable the company to assist its global customers in simplifying the energy transition.
The company has been investing in research and development to develop new and advanced products for its customers. Since 2020, Eaton has invested $1.3 billion in research and development for sustainable solutions and is targeting a $3 billion investment in research and development activities by 2030.
Eaton’s Wide Product Offering
Eaton has a diversified product portfolio offering, which provides energy-efficient solutions to its broad customer base. Courtesy of its high-quality product offering, the company has already won more than $1 billion in new orders. It is in active negotiations on another $1 billion of electrical content on a small subset of these total projects.
Eaton’s Electrical and Aerospace segment backlog growth remained strong as orders and supply chain began to normalize gradually. Rising backlog and solid orders for its products will continue to drive the performance of the company in the long run. The transition in Utility space and Aerospace growth will also benefit Eaton, as its customized products will fulfill the needs of these sectors. The company’s Electrical and Aerospace backlogs remain robust and growing. Eaton’s backlog growth, with orders, increased 27% in Electrical and 14% in Aerospace on a rolling 12-month basis.
Courtesy of ongoing investment in research and developments, expanding operations and new advanced products being offered to a wide customer base, the company expects organic revenue growth and a positive impact on its margins.
Eaton’s Return on Capital
Return on invested capital (ROIC) has hovered around 8% over the last few years and outperformed the industry average in the trailing 12 months. ROIC of ETN was 8.7% compared with the industry average of 3.52%. The company has been investing effectively in profitable projects, which is evident from its ROIC.
Image Source: Zacks Investment Research
ETN’s trailing 12-month return on equity is 21.46%, ahead of the industry average of 10.01%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
Image Source: Zacks Investment Research
Eaton Increasing Shareholder’s Value
Eaton continues to generate a stable cash inflow through proficient handling of operating activities. Courtesy of its stable cash flow, the company has been increasing shareholder value through dividend payments and share repurchases. In 2024, it expects free cash flow in the range of $3.4-$3.6 billion compared with $2.9 billion in 2023.
In 2024, the company plans to repurchase shares in the range of $1.5-$2.5 billion. In 2022, the board renewed the 2019 program by providing authority for up to $5 billion in repurchases to be made in the three years commencing on that date (2022 Program). In the six months that ended Jun 30, 2024, 2.3 million ordinary shares were repurchased under the 2022 program at a total cost of $738 million.
Eaton’s management has raised dividends for 15 consecutive years and raised its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.25%, better than its industry’s yield of 0.55%.
Eaton’s Estimates Moving Upwards
Riding on the back of strong performance in the first half of 2024, the company now projects adjusted earnings per share (EPS) in the range of $10.65-$10.75 for 2024, indicating an increase of 17% at the midpoint from the prior-year levels. It raised its organic sales guidance for 2024 from 7-9% to 8-9%. Eaton also raised its segment margin guidance from 22.8-23.2% to 23.3-23.7%.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share has moved up 1.4% and 1.6%, respectively, in the last 60 days. The Zacks Consensus Estimate of 2024 earnings per share of Illinois Tool Works (ITW - Free Report) , another operator in this space, moved up by 0.4% in the last 30 days.
Image Source: Zacks Investment Research
Eaton’s Stock Valuation
Eaton’s stock is currently overvalued compared to its industry on a forward 12 months P/E multiple basis, as shown in the chart below. Given Eaton’s strong product offering, ongoing investment in research and development, rising earnings estimates and strong free cash flow, a premium valuation is quite justified for this stock.
Image Source: Zacks Investment Research
To Sum Up
Eaton continues to benefit from the strong contribution of its organic assets. The company’s decision to further expand its Montreal Innovation Center is a testament to its commitment to providing high quality products through continuous research and development work. Proper power management is a crucial factor for the successful performance of a project, and Eaton continues to provide the required solution to its customers.
Given the positive movement in earnings estimates, strong return on capital and ongoing initiative to develop new products for efficient power management solutions, this Zacks Rank #2 (Buy) company is currently an ideal candidate to add to your portfolio.
Image: Bigstock
Eaton (ETN) Expands its Montreal Innovation Center: Time to Buy?
Power management company Eaton Corporation (ETN - Free Report) recently announced expansion plans for its global Innovation Center near Montreal in Brossard, Quebec within a year of its opening. Eaton’s Innovation Center is focused on the research and development of distributed energy resources ("DER") technologies. After the expansion of the innovation center, it will provide hands-on training for digital technologies accelerating the energy transition, accelerating innovation and adoption of new solutions.
Currently, energy flows through the grid in more directions and through more devices than ever before, and this decentralization creates more complexities and challenges, it also creates new growth potential. Eaton’s Everything as a Grid approach is shaping a future where homeowners and businesses can reduce the cost and environmental impact of energy. Its flexible, intelligent power management ensures efficient usage of energy and creates new opportunities for everyone.
Shares of Eaton have gained 34.4% in the past year compared with its industry’s growth of 12.4%. The company has outperformed the S&P 500 in the same period.
Price Performance (One year)
Image Source: Zacks Investment Research
Importance of Eaton’s Montreal Innovation Center
Eaton opened its Montreal Innovation Center in November 2023. With a focus on developing advanced solutions to optimize DERs, the company is bringing together multiple disciplines, including cybersecurity, software, human-centered design and automation experts to maximize the impact of sustainable technology across industries.
At its Montreal Innovation Center, Eaton is collaborating closely with Hydro-Québec to develop and commercialize novel solutions like its next-generation microgrid system that will help simplify, accelerate and optimize the integration of renewables and energy storage for utilities, buildings and industry. Eaton’s decision to expand this innovation center will enable the company to assist its global customers in simplifying the energy transition.
The company has been investing in research and development to develop new and advanced products for its customers. Since 2020, Eaton has invested $1.3 billion in research and development for sustainable solutions and is targeting a $3 billion investment in research and development activities by 2030.
Eaton’s Wide Product Offering
Eaton has a diversified product portfolio offering, which provides energy-efficient solutions to its broad customer base. Courtesy of its high-quality product offering, the company has already won more than $1 billion in new orders. It is in active negotiations on another $1 billion of electrical content on a small subset of these total projects.
Eaton’s Electrical and Aerospace segment backlog growth remained strong as orders and supply chain began to normalize gradually. Rising backlog and solid orders for its products will continue to drive the performance of the company in the long run. The transition in Utility space and Aerospace growth will also benefit Eaton, as its customized products will fulfill the needs of these sectors. The company’s Electrical and Aerospace backlogs remain robust and growing. Eaton’s backlog growth, with orders, increased 27% in Electrical and 14% in Aerospace on a rolling 12-month basis.
Courtesy of ongoing investment in research and developments, expanding operations and new advanced products being offered to a wide customer base, the company expects organic revenue growth and a positive impact on its margins.
Eaton’s Return on Capital
Return on invested capital (ROIC) has hovered around 8% over the last few years and outperformed the industry average in the trailing 12 months. ROIC of ETN was 8.7% compared with the industry average of 3.52%. The company has been investing effectively in profitable projects, which is evident from its ROIC.
Image Source: Zacks Investment Research
ETN’s trailing 12-month return on equity is 21.46%, ahead of the industry average of 10.01%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
Image Source: Zacks Investment Research
Eaton Increasing Shareholder’s Value
Eaton continues to generate a stable cash inflow through proficient handling of operating activities. Courtesy of its stable cash flow, the company has been increasing shareholder value through dividend payments and share repurchases. In 2024, it expects free cash flow in the range of $3.4-$3.6 billion compared with $2.9 billion in 2023.
In 2024, the company plans to repurchase shares in the range of $1.5-$2.5 billion. In 2022, the board renewed the 2019 program by providing authority for up to $5 billion in repurchases to be made in the three years commencing on that date (2022 Program). In the six months that ended Jun 30, 2024, 2.3 million ordinary shares were repurchased under the 2022 program at a total cost of $738 million.
Eaton’s management has raised dividends for 15 consecutive years and raised its quarterly dividend rate during the first quarter of 2024. The current annual dividend is $3.76 per share, reflecting a dividend yield of 1.25%, better than its industry’s yield of 0.55%.
Eaton’s Estimates Moving Upwards
Riding on the back of strong performance in the first half of 2024, the company now projects adjusted earnings per share (EPS) in the range of $10.65-$10.75 for 2024, indicating an increase of 17% at the midpoint from the prior-year levels. It raised its organic sales guidance for 2024 from 7-9% to 8-9%. Eaton also raised its segment margin guidance from 22.8-23.2% to 23.3-23.7%.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 earnings per share has moved up 1.4% and 1.6%, respectively, in the last 60 days. The Zacks Consensus Estimate of 2024 earnings per share of Illinois Tool Works (ITW - Free Report) , another operator in this space, moved up by 0.4% in the last 30 days.
Image Source: Zacks Investment Research
Eaton’s Stock Valuation
Eaton’s stock is currently overvalued compared to its industry on a forward 12 months P/E multiple basis, as shown in the chart below. Given Eaton’s strong product offering, ongoing investment in research and development, rising earnings estimates and strong free cash flow, a premium valuation is quite justified for this stock.
Image Source: Zacks Investment Research
To Sum Up
Eaton continues to benefit from the strong contribution of its organic assets. The company’s decision to further expand its Montreal Innovation Center is a testament to its commitment to providing high quality products through continuous research and development work. Proper power management is a crucial factor for the successful performance of a project, and Eaton continues to provide the required solution to its customers.
Given the positive movement in earnings estimates, strong return on capital and ongoing initiative to develop new products for efficient power management solutions, this Zacks Rank #2 (Buy) company is currently an ideal candidate to add to your portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.