Eaton Corporation plcETNNYSE

Overview Intelligence Charts News Fundamentals DCF Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $223.31 per share(market-calibrated)

-43.0%

Upside to Fair Value

Current

$391.49

Pure Model

$212.01

Fair Value

$223.31

Bull Case

$269.35

Bear Case

$161.25

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.78%

Calibrated Growth

3.38%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $212.01.

What's Driving This Ratingfor ETN

✓

CapEx already efficient

CapEx at 2.28% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 17.00% — below the sector mature average of 19.05%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $8.0B (17.00% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 10.18% in Year 1 to 2.25% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $174.98/share (14.7x terminal FCF) while exit multiple gives $249.03/share (24.6x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $391.49, the market implies 6.78% perpetual growth — 453bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 73.14% indicates efficient cash generation. FCF reaches $7.0B by Year 10 (14.85% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.18

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.81%

Cost of Debt

Pre-tax Cost of Debt1.52%

Tax Rate17.03%

After-tax Cost of Debt1.26%

Equity Weight (E/V)93.15%

Debt Weight (D/V)6.85%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (93.15% × 9.81%) + (6.85% × 1.26%)

= 9.22%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$30.2B	$36.0B	$42.1B	$44.0B	$47.0B
EBIT	$5.1B	$6.1B	$7.2B	$7.5B	$8.0B
Tax	$876M	$1.0B	$1.2B	$1.3B	$1.4B
NOPAT	$4.3B	$5.1B	$5.9B	$6.2B	$6.6B
+ Depreciation	$999M	$1.2B	$1.4B	$1.5B	$1.6B
- Capex	$689M	$820M	$958M	$1.0B	$1.1B
- Δ NWC	$356M	$376M	$118M	$123M	$132M
Free Cash Flow	$4.2B	$5.1B	$6.2B	$6.5B	$7.0B
Discount Factor	0.916	0.767	0.643	0.539	0.414
Present Value	$3.9B	$3.9B	$4.0B	$3.5B	$2.9B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.0B

Terminal Growth Rate2.25%

WACC9.22%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$102.3B

PV of Terminal Value$42.3B

Exit Multiple Method

Year 10 EBITDA$9.5B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$171.8B

PV of Terminal Value$71.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$36.1B

PV of Terminal Value$42.3B

Enterprise Value$78.5B

(-) Net Debt$10.5B

Equity Value$67.9B

Shares Outstanding388M

Price per Share$174.98

Exit Multiple Method

PV of Projected FCFs$36.1B

PV of Terminal Value$71.1B

Enterprise Value$107.2B

(-) Net Debt$10.5B

Equity Value$96.7B

Shares Outstanding388M

Price per Share$249.03

Pure Model Fair Value

$212.01

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.22%	$261.50	$268.83	$277.64	$288.42	$301.92
8.22%	$230.12	$235.01	$240.72	$247.47	$255.57
9.22%	$204.70	$208.11	$212.01	$216.51	$221.76
10.22%	$183.49	$185.95	$188.72	$191.86	$195.45
11.22%	$165.43	$167.26	$169.29	$171.56	$174.11

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$161.25

-58.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.47

Base Case

$212.01

-45.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.18

Bull Case

$269.35

-31.2% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.00

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth10.18%

Year 3 Revenue Growth8.94%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin17.00%

Terminal EBIT Margin19.05%

Tax Rate17.03%

Historical Capex / Rev2.28%

NWC / Revenue12.75%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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