2 Powerful Tailwinds Are Backing This Portfolio Holding

Electrical and aerospace company Eaton (ETN) reported June-quarter EPS of $3.15 on revenue of $8.53 billion, besting the market consensus of $3.07 and $8.16 billion, respectively. The 21% year-over-year jump in revenue was comprised of organic growth of 14% with the balance contributed by acquired businesses.

Our view has been Eaton is well positioned as electric utility spending ramps to address capacity pain points fueled in part by data-center demand and rising aircraft production levels. The strong gains in revenue, orders and backlog during the June quarter across Eaton’s three operating segment – Electrical Americas, Electrical Global, and Aerospace – point to that playing out.

Orders at the Electrical America segment climbed 41% during the quarter, putting the segment’s backlog at $3.8 billion, up 33% year over year. Similarly, trailing 12-month orders at Electrical Americas led segment backlog to climb more than 100% compared to year-ago levels. While the magnitude of gains was not as high at the Aerospace segment, backlog was up 28%, year over year, and book-to-bill levels point to it climbing further.

With Boeing (BA) and Airbus (EADAY) increasing aircraft production levels, the outlook for Eaton’s aerospace segment remains more than favorable, in our view. We can say the same for the combined Electrical segments given multi-year capital spending plans on the part of electric utilities such as Dominion Energy (D), Next Era Energy (NEE), Duke Energy (DUK), Southern (SO) and others. With hyperscaler spending expected to step up further in H2 2026 and again in 2027, we’ll continue to monitor electric utility capex plans.

Separating Eaton’s Mobility Segment

During the June quarter, Eaton announced an agreement to separate its Mobility business through a Reverse Morris Trust transaction that will combine it with Dana Incorporated (DAN). As a reminder, Eaton shareholders will own at least 50.1% of the combined company’s outstanding shares following the consummation of the transaction, which is expected to close in Q1 2207.

We see the removal of the slower-growing, cyclical and lower-margin Mobility business as a positive for a few reasons. Arguably the biggest one is it will alter the margin profile of the company and lead investors to re-think how they value ETN shares.

Guidance and Our Price Target

For the current quarter, Eaton issued in-line guidance for EPS of $3.46 to $3.56, but raised its outlook for 2026 to $13.40-$13.60 from $13.05-$13.50. That lifting of the bottom-end of the range is way more than the $0.08 EPS beat Eaton delivered for the June quarter. What helps explain that is the increase in expected organic revenue growth to 11%-13% from 9%-11% shared back in April. In our view, this reflects the strong order books and building backlog at the Electrical segments as well as the Aerospace ones. It also reaffirms why we have ETN in the Pro Portfolio.

While those figures offer us a reason to nudge our ETN price target higher from $450, we’d rather wait for two things before we potentially make that move. One of those is capital spending comments from additional public electric utilities that will report in the next few weeks. What we’ve heard so far from Dominion Energy, Next Era Energy, and Southern point to a strong spending in the back half of this year and 2027. That’s encouraging but let’s hear from a few more so we avoid any extrapolation mistakes.

Second, as we’ve discussed, Boeing reports monthly aircraft deliveries, and as those figures climb, it will give us a reason to revisit our ETN price target.

To be clear, we see strong multi-year tailwinds across Eaton’s businesses, and the benefit of that on revenue, profits and EPS is what we aim to capture with the shares.

Connecting the Dots to United Rentals

As we talk about expanding electric utility capacity, we’ll share a comment made by Southern’s management team on their earnings call last night about electrical generation and grid infrastructure. It may be somewhat obvious but even so, sometimes stating the obvious during a busy time like now can be helpful: “… these projects are bringing in a substantial amount of construction work.”

That reaffirms the commentary from Portfolio holding United Rentals (URI) and supports a favorable demand profile for the company’s rental business and its utilization levels.

More Pro Portfolio: (updated July 31)

At the time of publication, TheStreet Pro was long BA, ETN and URI.