Boosting Our Price Target for This Electricity Pain Point Play

We are seeing calmer heads emerge following the post-earnings move lower in Eaton ETN shares on Tuesday.

Ahead of the company’s earnings call, we discussed the likely culprit behind the company’s modestly lower than consensus EPS guidance for the current quarter as being the softening market for the company’s Vehicle and eMobility markets. Recently updated forecasts for the U.S. new vehicle market for cars and trucks call for a year-over-year decline in 2025 compared to 2024, with the bulk of that decline coming in 2H 2025.

However, that was the only chink in Eaton’s quarter, given the increased backlog for its Electrical and Aerospace businesses, and that led Eaton to lift the midpoint of its 2025 EPS guidance, and for us to boost our ETN price target to $420 from $400. For members who are underweight the shares relative to the Portfolio's position size, the combination of our price target boost and Tuesday's pullback in the shares offers a nice point to pick up some additional shares. As we move through the seasonally weak period between August and September, we see much stronger support near $325.

During the earnings call, Eaton management shared books for the Electrical segments remain strong and it should end the year with a 20205 book-to-bill ratio greater than one. That means backlog levels for that business should continue to grow in 2H 2025, which speaks to the rising capital spending levels we discussed over the last two weeks from Alphabet GOOGL, Meta META, Microsoft MSFT and Amazon AMZN.

While data center is a strong driver of demand, it would be a mistake to think it was the only driver, as overall electricity demand continues to climb. ICF pegs U.S. electricity demand to grow at 25% by 2030. And while the precise rate of growth may be off by a percentage point or two when all is said and done, we are seeing capital planning budgets at major electric utilities at lofty levels for 2025 to 2029.

This week, Duke Energy DUK announced it will increase its 2025 to 2029 capital plan by $4 billion to $87 billion

On its June earnings call, Dominion Energy D reiterated that its capital plan for the same period is around $50 billion.

American Electric Power AEP is at $54 billion for the five years.

Last week, Southern Energy MAXMD increased its 2025 to 2029 capital plan by $13 billion to $76 billion.

Viewed from a different perspective, Eaton management updated its major negotiations pipeline for the June quarter during the earnings call, sharing it was up 31% year over year and up 60% compared to Q2 2023. Mega projects remain strong with 65 project announcements at a value of $333 billion on a year-to-date basis, with the U.S. mega project backlog approaching $2.4 trillion, up 31% year-over-year. So far, nearly 50% of the projects have started as of the June quarter, which still provides a multiyear runway, which is also a positive for the Portfolio’s position in United Rentals URI.

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At the time of publication, TheStreet Pro Portfolio was long ETN, GOOGL, META, MSFT, AMZN and URI.