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    ETN · NYQ · Industrials

    Eaton Corporation plc

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 128.00

    Market price

    USD 424.77

    Implied upside

    -69.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Current EV/EBITDA of 28.1x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 128.00-69.9%
    Exit multiple
    USD 325.48-23.4%
    Market price
    USD 424.77

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 30.1bnUSD 33.1bnUSD 36.3bnUSD 39.9bnUSD 43.7bn+9.8%
    EBITUSD 5.2bnUSD 5.7bnUSD 6.2bnUSD 6.9bnUSD 7.5bn+9.8%
    NOPATUSD 4.3bnUSD 4.8bnUSD 5.2bnUSD 5.7bnUSD 6.3bn+9.8%
    Add depreciation & amortisationUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.6bnUSD 1.7bn+9.8%
    Less capital expenditureUSD -959.7mUSD -1.1bnUSD -1.2bnUSD -1.3bnUSD -1.4bn+9.8%
    Less increase in working capitalUSD -349.2mUSD -383.3mUSD -420.7mUSD -461.8mUSD -506.9m+9.8%
    Free cashflow to firmUSD 4.2bnUSD 4.6bnUSD 5.1bnUSD 5.6bnUSD 6.1bn+9.8%
    Discount factor0.95040.85860.77560.70060.6329-
    Present valueUSD 4.0bnUSD 4.0bnUSD 4.0bnUSD 3.9bnUSD 3.9bn-0.8%
    Present Value Of The ForecastUSD 19.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.113Reported 1.168, pulled toward 1.0 (Blume)
    Cost of equity11.12%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 165.0bn94.0% of capital
    Total debtUSD 10.5bn6.0% of capital, book value as a proxy
    Tax rate16.3%Effective, capped at statutory
    WACC10.70%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 128.00

    67% of EV

    Forecast FCFF, final year
    USD 6.1bn
    Capex at depreciation, working capital in reinvestment
    USD 6.3bn
    Less reinvestment at g/ROIC (19.6% of NOPAT)
    USD -1.2bn
    Capitalised
    USD 5.1bn
    ROIC (reported)
    12.8%
    Terminal value, undiscounted
    USD 63.3bn
    Terminal value, discounted
    USD 40.0bn
    Enterprise value
    USD 59.8bn
    Less net debt
    USD 9.7bn
    Equity value
    USD 50.1bn

    Exit at 20.0x EBITDA

    Value per shareUSD 325.48

    86% of EV

    Terminal value, undiscounted
    USD 185.3bn
    Terminal value, discounted
    USD 117.3bn
    Enterprise value
    USD 137.1bn
    Less net debt
    USD 9.7bn
    Equity value
    USD 127.3bn

    Spread between methods: 87%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.70%165.51169.91174.94180.78187.65
    9.70%142.67145.29148.22151.53155.30
    10.70%124.79126.32128.00129.83131.87
    11.70%110.41111.25112.14113.09114.11
    12.70%98.6098.9999.3899.77100.17

    Outlined: this model. Green text: above today's price of 424.77. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year9.8%41.0%+31.2pp
    EBIT margin17.2%50.3%+33.1pp
    Discount rate10.7%5.2%-5.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.