We're Buying More of This Power Play as We Hike Our Price Target
Robust orders and backlog have us looking past the near-term impact of Hurricane Helene.
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| Symbol | Transaction Type | # Shares Traded | Recent Price $ | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
ETN | Buy | 60 | 330.50 | 360 | 2.5 |
After you receive this Alert, TheStreet Pro Portfolio will buy 60 shares of Eaton Corp. ETN at or near $330.50. Following the trade, ETN shares will account for roughly 2.5% of the portfolio.
As we continue to move through quarterly results from the portfolio’s holdings, let’s turn our attention to Eaton Corp. Along with the market and other tech heavyweights, ETN shares are trading off today. This follows what we see as a solid September quarter with record backlog levels that support strong performance ahead as multiple factors, including data center construction, exacerbate the power pain point.
What we see is leading us to boost our ETN price target to $380 from $350. Because today’s pressure in the stock is tied to a modest revenue guidance shortfall that ties back to Hurricane Helene, our longer-term view is leading us to take advantage of the situation to add some more ETN to the portfolio.
Why Is Eaton Trading Off Today?
What’s weighing on Eaton shares is the softer-than-expected top and bottom-line guidance for the current quarter. The market consensus called for EPS of $2.81 on revenue of $6.46 billion (up 8.2% year over year) but Eaton guided current quarter revenue to $6.3 billion-$6.4 billion with EPS of $2.78-$2.84.
Meanwhile, September-quarter revenue rose 8% year over year and was little changed compared to June-quarter revenue of $6.4 billion. Revenue for the September quarter was impacted by roughly $50 million or 50-basis points, by the recent hurricanes, which coming off comments from Vulcan Materials VMC, Martin Marietta Materials MLM, and others should not be much of a surprise. Adjusting for that, Eaton’s EPS beat would have been stronger than it was and revenue would have topped consensus expectations. But we don’t live in the “what may have been world.”
On the earnings call, we learned Hurricane Helene will have some effect on the current quarter, but it boils down more to a timing issue than anything else given strong demand, especially at Eaton’s Electrical America segment. Orders for the segment rose 16% in the September quarter, leading overall Electrical orders to climb 12% and putting the backlog level for Electrical America up 26%.
Record Backlog and More Activity in 2025-2026
Supporting that backlog, Eaton referenced 504 mega projects being announced since 2021, each of which has a value of more than $1 billion. The total mega project backlog sits at $1.8 trillion, up from 30% year over year. With 16% of those mega projects underway and 2025 expected to result in a record number of project starts, the outlook for Eaton is bright, in our view.
Across those started projects Eaton said it has won over $1.7 billion in orders, and it is in active negotiations for $3 billion. That active negotiations pie is up 175% compared to the last quarter. This puts some context around spending from Big Tech and also infrastructure stimulus programs, leaving these figures to be supportive as well for our positions in United Rentals URI, Vulcan Materials, and the non-residential business of Waste Management WM.
The residential market drives about 8% of Eaton’s electrical sales, and management’s thinking is that the market has hit bottom. On the earnings call, management discussed factors driving greater electrification in the residential market, ranging from solar panels, EVs, and energy storage. Quite true, but we see a larger influence for Eaton’s residential business from what we also see for Builders FirstSource BLDR — the Fed moving monetary policy back to a more neutral footing over time. That should translate into a rebounding housing market as well as lower hurdle rates and project costs for non-residential construction projects. Our thinking is that combination means construction activity in 2026 should be even stronger than next year, and Eaton is positioned to benefit from that.
What We’re Watching Next for Eaton Shares
After today’s trade, our ETN position size will still be on the smaller size. As we touched on earlier in our Microsoft MSFT note, the September core PCE figure of 2.7% is another reason to think the Fed could underwhelm the market when it comes to the pace of rate cuts. And that could weigh further on the shares of our construction-related holdings, including Eaton. Should that come to pass, and we see ETN retreat near the 100-day moving average of $314, it would give us a reason to pick up more shares and potentially revisit our Two rating.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to click on Closed Trade Gain/Loss and toggle the chart to sort by Purchase Date.)
At the time of publication, TheStreet Pro Portfolio was long ETB, VMC, URI, MSFT, BLDR and WM.
