Eaton Corporation plcETNNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $230.76 per share(market-calibrated)

-35.1%

Upside to Fair Value

Current

$355.56

Pure Model

$220.30

Fair Value

$230.76

Bull Case

$279.80

Bear Case

$167.87

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.24%

Calibrated Growth

3.25%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $220.30.

What's Driving This Ratingfor ETN

✓

CapEx already efficient

CapEx at 2.00% 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 17.04% — 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 (17.04% 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 $184.68/share (14.9x terminal FCF) while exit multiple gives $255.91/share (24.1x 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 $355.56, the market implies 6.24% perpetual growth — 399bps 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 74.72% indicates efficient cash generation. FCF reaches $7.2B by Year 10 (15.31% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.17

Market Risk Premium4.50%

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

Cost of Equity (Re)9.75%

Cost of Debt

Pre-tax Cost of Debt1.52%

Tax Rate17.03%

After-tax Cost of Debt1.26%

Equity Weight (E/V)92.51%

Debt Weight (D/V)7.49%

WACC Calculation

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

WACC = (92.51% × 9.75%) + (7.49% × 1.26%)

= 9.12%

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	$5.2B	$6.1B	$7.2B	$7.5B	$8.0B
Tax	$878M	$1.0B	$1.2B	$1.3B	$1.4B
NOPAT	$4.3B	$5.1B	$5.9B	$6.2B	$6.6B
+ Depreciation	$1.0B	$1.2B	$1.4B	$1.5B	$1.6B
- Capex	$603M	$718M	$839M	$877M	$938M
- Δ NWC	$356M	$376M	$118M	$123M	$132M
Free Cash Flow	$4.4B	$5.2B	$6.4B	$6.7B	$7.2B
Discount Factor	0.916	0.770	0.646	0.543	0.418
Present Value	$4.0B	$4.0B	$4.2B	$3.7B	$3.0B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.2B

Terminal Growth Rate2.25%

WACC9.12%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$107.1B

PV of Terminal Value$44.8B

Exit Multiple Method

Year 10 EBITDA$9.6B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$173.3B

PV of Terminal Value$72.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$37.5B

PV of Terminal Value$44.8B

Enterprise Value$82.2B

(-) Net Debt$10.5B

Equity Value$71.7B

Shares Outstanding388M

Price per Share$184.68

Exit Multiple Method

PV of Projected FCFs$37.5B

PV of Terminal Value$72.4B

Enterprise Value$109.9B

(-) Net Debt$10.5B

Equity Value$99.3B

Shares Outstanding388M

Price per Share$255.91

Pure Model Fair Value

$220.30

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%
7.12%	$271.99	$279.92	$289.48	$301.22	$316.01
8.12%	$239.05	$244.30	$250.45	$257.74	$266.53
9.12%	$212.47	$216.12	$220.30	$225.13	$230.79
10.12%	$190.38	$193.00	$195.96	$199.32	$203.17
11.12%	$171.61	$173.56	$175.72	$178.14	$180.86

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

$167.87

-52.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.46

Base Case

$220.30

-38.0% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.17

Bull Case

$279.80

-21.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.99

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 Margin17.04%

Terminal EBIT Margin19.05%

Tax Rate17.03%

Historical Capex / Rev2.00%

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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