Eaton (ETN 2.01%), one of the world's largest power management companies, is often considered a stable blue chip stock. Over the past five years, its shares rose 170% as the S&P 500 advanced nearly 80%. Yet over the past 12 months, its stock slipped 5%.
Eaton disappointed the market as its revenue growth decelerated and missed analysts' estimates. The weakness of its vehicle and eMobility segments, which faced persistent macro headwinds, also overshadowed the robust growth of its aerospace and data center businesses.
Should contrarian investors buy Eaton's stock as the bulls look the other way? Let's review its business model, growth rates, and valuations to see where it might head over the next year.
Image source: Getty Images.
What does Eaton do?
Eaton designs, manufactures, and services power management equipment and systems for distributing electrical, hydraulic, and mechanical power across over 160 countries. It splits its business into five segments: Electrical Americas (49% of its sales in the third quarter of 2025), Electrical Global (24%), Aerospace (16%), Vehicle (9%), and eMobility (2%).
The Electrical Americas and Electrical Global divisions both sell circuit breakers, electrical panels, uninterruptible power supply (UPS) systems, power distribution units, electrical safety devices, and other components for modern power grids and electrical systems.
The Americas segment generates most of its growth from data centers, utility companies, and commercial customers. The Global segment primarily serves large government infrastructure projects. These two electrical segments generate most of Eaton's operating profits.
The Aerospace segment develops hydraulic, fuel, motion control, and electrical systems for aircraft manufacturers, airlines, and defense contractors. This segment mainly relies on the defense industry for stable growth, new contracts, and recurring service revenues.
The vehicle segment sells powertrain components for gas-powered and hybrid vehicles, while the eMobility segment sells electrical systems for electric vehicles (EVs). These two automotive segments are more cyclical than Eaton's Electrical and Aerospace divisions, and both struggled over the past few years as the traditional auto and EV markets cooled.
NYSE: ETN
Key Data Points
What happened to Eaton over the past year?
On an organic basis, excluding acquisitions and divestments, Eaton's sales grew steadily over the past year. However, its organic sales growth decelerated over the past two quarters as its core Electrical Americas segment lost its momentum.
|
Organic Sales Growth (YOY) |
Q3 2024 |
Q4 2024 |
Q1 2025 |
Q2 2025 |
Q3 2025 |
|---|---|---|---|---|---|
|
Electrical Americas |
14% |
9% |
13% |
12% |
9% |
|
Electrical Global |
4% |
5.5% |
9% |
7% |
8% |
|
Aerospace |
8% |
9% |
13% |
11% |
13% |
|
Vehicle |
(6%) |
(7%) |
(15%) |
(8%) |
(9%) |
|
eMobility |
1% |
(10%) |
3% |
(7%) |
(20%) |
|
Total |
8% |
6% |
9% |
8% |
7% |
Data source: Eaton. YOY = Year-over-year.
The Electrical Americas segment still profited from the expansion of the power-hungry cloud infrastructure, high-performance computing (HPC), and artificial intelligence (AI) markets -- which drove more companies to expand their data centers. Still, it faced tough comparisons to the previous year.
As some of its hyperscale customers shifted from capacity expansion to hardware and software optimization, the near-term demand for its data center products softened. Its commercial and industrial customers also cautiously delayed some of their larger projects.
At the same time, Eaton's vehicle and eMobility segments struggled as production of medium- and heavy-duty trucks slowed, the internal combustion engine market remained stagnant, and the EV market grappled with delays and weak consumer demand.
On the bright side, Eaton's segment margins expanded over the past year as it generated less revenue from its lower-margin vehicle and eMobility segments, while its higher-margin Electrical Americas and Aerospace segments also continued to grow.
Where will Eaton's stock be in a year?
For 2025, Eaton expects its organic sales to rise 8.5%-9.5%, its segment margin to expand 10 to 50 basis points, and its adjusted earnings per share (EPS) to grow 11%-13%.
Analysts expect its adjusted EPS to rise about 12% in both 2025 and 2026. That stable outlook suggests its core businesses will overcome their near-term speed bumps. The secular expansion of the data center and AI infrastructure markets, the robust growth of its aerospace segment, and more strategic acquisitions -- including its planned $9.5 billion takeover of Boyd Thermal (a developer of data center cooling solutions) -- should support its long-term growth.
At $340, Eaton's stock still looks reasonably valued at 28 times its projected 2025 EPS. If it matches analysts' 2026 estimates and still trades at the same trailing multiple, its stock could rise about 12% to $381 per share over the next 12 months. It could also command a higher valuation if its data center business heats up or its cyclical automotive customers recover. Therefore, I believe Eaton has a good shot at beating the S&P 500 -- which has generated an average annual return of 10% since its inception -- this year.
