Analyst Ann Duignan at J.P. Morgan pushed Eaton Corporation plc (NYSE:ETN) up from neutral to overweight. That's the second notable upgrade for this industrial giant in just a couple of months. What are analysts seeing at this 3.3% yielding company to support their positive rating shifts?   

It's doing well right now

There's no question that Eaton has been doing quite well this year. For example, earnings in the second quarter came in at $1.39 per share, up 21% year over year. First-quarter earnings were strong as well, up 15% year over year. The company also increased its dividend by 10% in the first quarter, highlighting the strength even more. In addition, Eaton bought back $600 million of stock through the first six months of the year.   

A hand drawing a scale weighing value and price.

Image source: Getty Images.

It's not just the bottom line that's doing well, either. The industrial giant's organic sales rose 6% in the first quarter and 7% in the second quarter. Segment margins, meanwhile, achieved a first-quarter record in the initial stanza of the year and an all-time record in the second. By just about any measure, it looks like Eaton is hitting on all cylinders today.   

What about tomorrow?

That's an impressive string of results, but it's backward-looking information. The outlook is what has J.P. Morgan's Duignan excited. The company started the year expecting organic sales to advance as much as 4% in 2018. After the first quarter, it raised that number to 5%, with a roughly $0.10 increase in its earnings guidance for the year. After the second quarter, it lifted organic sales guidance to a 6% increase, with another $0.10 boost to its earnings guidance. At this point, Eaton expects earnings to be between $5.20 and $5.40 a share in 2018. At the midpoint of guidance, that's a roughly 14% increase over 2017.   

Backing up that strength, and specifically highlighted by J.P. Morgan's Duignan, was Eaton's diversified portfolio. It serves three end markets that it believes are in a late stage of their typical cycle, six that are in the midstage (including aerospace, utilities, and non-residential U.S. construction), and seven that are in an early stage (such as data centers, mining equipment, agricultural equipment, and defense aerospace). With so many end markets still in earlier stages of their cycles, Eaton expects "to see solid market growth for several years." Duignan clearly agrees with that assessment.    

ETN Chart

ETN data by YCharts.

But is Eaton worth buying today? The answer isn't a clear yes after a solid rally in the shares over the past month or so. The company's trailing price-to-earnings ratio of 11.5 is below its five-year average of 16.4. However, price to sales, price to cash flow, and price to book are a little above their five-year averages.     

Its price to forward earnings of 15.4, however, is below the company's five-year average P/E and below the forward P/E for the Vanguard Industrials Index Fund ETF (NYSEMKT:VIS). In fact, Eaton's price to sales, price to cash flow, and price to book are all in line or lower than the index figures. Eaton may not be as compelling a buy as it was earlier in the year, but it still looks like a relatively good value in the industrial space.   

There's still time to jump aboard

Although the underlying strength in Eaton's business is clearly being recognized by the market, it looks like the stock is still a relative bargain in the industrial sector. Add in a roughly 3.3% dividend yield, well above the 2% or so you can get from an S&P 500 Index fund, and there's even more to like here. It appears that investors trying to find a decent deal in an expensive market should like what they see in Eaton.

Reuben Gregg Brewer owns shares of Eaton. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.