Circling a New Eaton Price Target With Shares Under Pressure

Between Monday night and Tuesday morning, the Portfolio’s holdings in Axon AXON and Palantir PLTR delivered beat-and-raise June quarters, which is leading to multiple price target increases across Wall Street on Tuesday.

We are increasing our AXON price target to $860 from $840, which reflects the ongoing mix shift toward the higher margin software and services business. We are also once again boosting our PLTR price target to $175 from $160.

We wanted to share those decisions with you early on Tuesday morning, and we’ll go into more details in standalone notes later in the morning, so we can discuss the pre-market fall we’re seeing in Eaton ETN shares.

Coming off of rising AI and data center capital spending figures, the market expected not only a June quarter beat, which Eaton delivered, but also raised guidance. While Eaton updated outlook for 2025 bookended market consensus EPS expectations, its guidance for the current quarter fell modestly short of consensus forecasts.

Details in the earnings press release were limited, but we can see Eaton delivered strong year-over-year topline growth and margin improvement at its Electrical segments (73% of revenue, 80% of operating profit). That business continues to benefit from data center capital spending, with management noting those orders were up 55% in the quarter. We saw the same at its smaller Aerospace business (15% of sales, 14% of operating profits), but not at its combined Vehicle and eMobility segments.

Comparing Eaton’s March quarter earnings presentation against the one for its June quarter ahead of Tuesday morning's earnings call, we see raised expectations for its Electrical business, both in terms of revenue and profit generation, but that is being mitigated by larger-than-expected declines at its Vehicles and eMobility. The earnings call should bring some color to that revised outlook, but we suspect the named cause will likely be laid at the feet of President Trump's tariffs.

On the one hand, Eaton will continue to benefit from rising data center capital spending levels and the ensuing need for electric utilities to bring additional capacity online in the coming years. That's the reason we added ETN shares to the Portfolio in the first place. However, coming off the raised capital spending comments received last week, we should not be blown away by the pullback in ETN shares on Tuesday morning because of the revised bottom line guidance for the current quarter.

For the current quarter, Eaton management sees EPS between $3.01 and $3.07, below the $3.09 market consensus but still above the $2.84 achieved in the September 2024 quarter. As we’ve discussed, given the market’s performance and that of individual stocks like Eaton, beat-and-raise quarters were what the market was looking for.

Simply put, Eaton did not deliver the beat-and-raise guidance that was expected, but that doesn't mean the reason for owing the shares has changed even thought they are trading off on Tuesday morning. Frustrating, for sure, but let’s not lose the forest for the trees by focusing on the businesses that account for less than 10% of Eaton’s operating profit. We’ll be far better served by focusing on the three that drive over 90% of its profits and the tailwind that is powering them.

With that in mind, on the earnings call, we’ll be listening to see how much conservatism is built into management’s comments, after all, this is a company with a solid track record of beating market EPS expectations. We’ll also be interested in efforts to maximize the profits in the Vehicle and eMobility segments in the near-term, as well as how much further margins at the Electrical business can expand over the long term. Based on what we learn, we will revisit our $400 price target as well as our $340 pickup point.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long AXON, PLTR and ETN.