Eaton Corp. (ETN)_ Updating estimates post C4Q25 EPS

Summary of Eaton Corp. (ETN) Conference Call Company Overview - Company: Eaton Corp. (ETN) - Market Cap: $151.6 billion - Enterprise Value: $157.8 billion - Industry: Multi-Industry (Americas) Key Financial Highlights - 4Q25 Adjusted EPS: Reported at $3.33, in line with expectations, with a segment EBIT increase of +1% compared to Goldman Sachs and consensus estimates [1][2] - Organic Growth: 4Q25 organic growth was +9%, with notable segment performances: - Electrical Americas: +15% - Electrical Global: +6% - Aerospace: +12% - Vehicle: -13% - eMobility: -17% [2] - Order Growth: 12-month rolling average orders for Electrical Americas increased by +16% (up from +7% in 3Q25), with data centers showing a significant increase of approximately +200% [2] Guidance and Estimates - FY26 Adjusted EPS Guidance: Introduced at $13.00 to $13.50, based on an expected organic growth of +7% to +9% [1][2] - 1Q26 Adjusted EPS Guidance: Projected between $2.65 and $2.85, with organic growth anticipated at +5% to +7% [2] - Margin Expectations: Management anticipates a ~130 basis points impact on Electrical Americas margins in FY26, with margins expected to be 27-27.5% in 1Q26 compared to ~30% for FY26 [1] Adjustments to Estimates - Revised EPS Estimates: FY26 and FY27 EPS estimates lowered by $0.05 to $13.40 and $15.00 respectively, reflecting a slower start to the year and operational inefficiencies [3] - New FY28 EPS Estimate: Introduced at $17.00 [3] Operational Considerations - Capacity Ramp Issues: Management noted inefficiencies due to fixed cost under-absorption and higher headcount impacting margins [1] - Weather Monitoring: Management is keeping an eye on unseasonably cold weather in North Carolina, where manufacturing is based, which could affect operations [1] Valuation Metrics - P/E Ratios: - FY25: 27.7 - FY26E: 29.1 - FY27E: 26.0 - FY28E: 22.9 [4] - Revenue Projections: - FY25: $27,449 million - FY26E: $30,285 million - FY27E: $32,519 million - FY28E: $34,779 million [4] Additional Insights - Dividend Yield: Expected to decrease from 1.1% in FY25 to 0.8% in FY26E [4] - Net Debt/EBITDA: Projected to decrease significantly from 1.5 in FY25 to 0.3 in FY27E [4] - Free Cash Flow: Expected to grow from $3,502 million in FY25 to $6,744.9 million in FY28 [4] Conclusion - Rating: The stock remains Not Rated by Goldman Sachs, indicating a cautious stance due to ongoing operational challenges and market conditions [1][15]