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Eaton Corporation plc (NYSE:ETN): Will The Growth Last?

On 30 September 2018, Eaton Corporation plc (NYSE:ETN) released its earnings update. Generally, it seems that analyst forecasts are fairly optimistic, as a 13% increase in profits is expected in the upcoming year, compared with the past 5-year average growth rate of 11%. With trailing-twelve-month net income at current levels of US$2.1b, we should see this rise to US$2.4b in 2019. Below is a brief commentary around Eaton’s earnings outlook going forward, which may give you a sense of market sentiment for the company. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Eaton

Can we expect Eaton to keep growing?

The 21 analysts covering ETN view its longer term outlook with a positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To understand the overall trajectory of ETN’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.

NYSE:ETN Future Profit November 14th 18

By 2021, ETN’s earnings should reach US$3.6b, from current levels of US$3.0b, resulting in an annual growth rate of 9.4%. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of $6.36 in the final year of forecast compared to the current $6.72 EPS today. Growth in the bottom line seems to suggest cost cutting activities, as revenues is expected to grow much slower than earnings. Margins is currently sitting at 15%, which is expected to expand to 16% by 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Eaton, I’ve put together three important aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Eaton worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Eaton is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Eaton? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.