Eaton
The electrical gear that carries power from the grid to a data centre's server racks and, since March, the cooling that carries the heat back out.
The scores
Growth3/4 ↑
Sales grew 14% before acquisitions and orders are accelerating, but 7 of 21 points were bought and reported earnings are guided flat.
Business quality3/4 →
A rival's filing calls it one of four suppliers of its breadth, but the only disclosed moat outcome is a margin.
Financial position3/4 ↓
Free cash flow covers the dividend comfortably, but a debt-funded purchase near a fifth of market value tripled the interest line in a year.
Execution record3/4 →
Eight consecutive adjusted beats and record segment margins, against a reported-earnings guidance cut of 11.5% within five months of issuing it.
Per share capture2/4 ↓
Growth reaches shareholders after $800 million a year of new amortisation and as much again of interest. Buybacks retire 0.5% yearly.
Potential3/4 ↑
The driver is measured by a national laboratory and large, but the prize bounds rather than composes and Eaton's share of it is not establishable.
Risk profile3/4 →
Six unnamed customers take 22% of Electrical sales, and the same class of buyer now writes the power standard. Disclosed and survivable.
Valuation2/4 ↓
43 times trailing earnings against a six-year median of 31, on a reported line guided to no growth. Full, not perfection.
Evidence quality3/4 →
Filings, two results releases, the call, a competitor's filing and government data. The moat rests on a margin and the prize does not compose.
The Verdict
We rate Eaton neutral. It makes the equipment that carries power from the grid to the machines that use it, and data centres have turned that into a boom. The business is solid. But a large cooling purchase brings a yearly cost that the company leaves out of its adjusted earnings, so adjusted profit rises this year while reported profit barely grows. The price is full: it looks reasonable only if you ignore that cost, and on reported earnings the shares cost well above what they usually have per dollar of profit. The view hinges on reported earnings catching up with adjusted as those charges run down.
The long caseData centres are taking a growing share of America's electricity, making the electrical room critical; Eaton's reported earnings must catch up with its adjusted ones for that to pay.
The evidence under this - 7 claims
- The cut is arithmetically the acquisition: intangible amortisation and acquisition charges per share doubled between the two guidance dates, and both are excluded from the adjusted figure the company manages to.
- A buyer who believes purchase amortisation is a non-economic accounting charge would read the same two releases as unambiguously good news, since the adjusted number went up and organic growth was raised.
The company
Electricity reaches a data centre at high voltage and has to arrive at each server rack stepped down, protected and backed up. Eaton makes the equipment along that path: switchgear, transformers, circuit protection and backup power. Since buying Boyd Thermal, it also sells the liquid cooling that takes the heat out.
The buyer's alternative is to piece the chain together from single-product suppliers. Eaton sold $27.4B in 2025, to utilities, factories, buildings, aircraft and vehicle makers as well.
The evidence under this - 2 claims
How it makes money
Eaton is paid for equipment it builds and ships, much of it ordered months ahead: its unfilled electrical orders were 43% larger in June than a year earlier, though it never says how large they are. The electrical businesses were 75.8% of sales in the June quarter, up from 64.5% in 2021, and six unnamed customers took 22% of electrical sales last year.
The evidence under this - 3 claims
Where the money comes from, stream by stream
| Stream | Share of sales (Q2 2026) | How it earns it |
|---|---|---|
| Electrical Americas: systems | 32.9% | Switchgear, power distribution assemblies and modular power centres built to order for data centres, utilities and buildings in the Americas. |
| Electrical Global: products | 19.1% | Breakers, power quality, and since March 2026 Boyd's liquid cooling, sold outside the Americas and to data-centre customers. |
| Aerospace | 14.3% | Fuel, hydraulic and power systems for aircraft makers, plus higher-margin aftermarket parts and repairs, roughly half each. |
| Electrical Americas: products | 13.4% | Breakers, fuses, wiring devices and UPS units sold largely through electrical distributors. |
| Electrical Global: systems | 10.4% | Engineered power distribution and quality systems for projects outside the Americas. |
| Mobility | 9.9% | Transmissions, clutches and electric-vehicle components for truck and car makers, due to merge with Dana in early 2027. |
Who runs it
Paulo Ruiz took over as chief executive in June 2025 after six years running parts of Eaton; Olivier Leonetti has run finance since 2024. Insiders own almost none of the company. The yearly bonus pays on adjusted profit, which leaves out the costs of buying companies, and on cash; the long-term shares pay on how the stock does against peers. Nothing pays on reported profit or on the return earned on what was bought.
The evidence under this - 4 claims
- The committee cut the calculated 96% payout to 70% after removing the Fibrebond gain and other items outside the profit plan, so the adjusted metric was not left to flatter the result.
- The 2023-2025 PSUs paid 138% of target on a 68.75th-percentile shareholder-return rank, which rewards the stock rather than any per-share profit measure.
Half the long-term award rides on relative shareholder return, which does bear the full cost of a deal that earns less than it cost.
Why it wins, and who could beat it
Why customers come back
Only a handful of suppliers can quote, build and warrant the whole electrical path for a giant data-centre campus, when equipment, not demand, is what is short. A specialist can win one box, not the chain. Vertiv, a rival, names Eaton in its own annual report as one of four competitors big enough to take a material share of its business.
The margin shows it: the American electrical business kept 27.5 cents of each sales dollar as profit in June, against 19.8 cents in the rest of the world.
The evidence under this - 2 claims
The threat
The biggest buyers are starting to write the rules. Google, Meta and Microsoft co-wrote an open design for delivering power inside the rack, so the buyer, not the supplier, decides how it is built. Schneider Electric and Vertiv sell the same chain. Eaton's answer was to buy: $9.55B for Boyd Thermal, 35% of a year's sales.
The evidence under this - 3 claims
The rivals: VRT, and 2 more that are private, in-house or listed abroad.
Who else does this, rival by rival
| Ticker | Rival | How far along | Priced against it |
|---|---|---|---|
| Schneider Electric SEPriced against it: Listed abroad | On sale | Listed abroad | |
| VRT | Vertiv HoldingsPriced against it: Same product | On sale | Same product |
| Not listed | The Open Compute Project's Diablo 400 rack-power specificationPriced against it: Not listed | Announced | Not listed |
How big it could get
How big this could get
Nobody publishes what a data centre spends on electrical gear for each unit of capacity, so the market can only be bracketed. American data centres used 176 terawatt-hours of electricity in 2023, 4.4% of the national total, up from 58 in 2014. Berkeley Lab, a government laboratory, projects 11.8% by 2030, within a range of 9.5% to 15.3%.
The evidence under this - 2 claims
Where the growth is coming from, business by business
Where the growth is coming from
| Business | Share of revenue | Growth: last quarter | Last half-year | Last year | Share in 3 years at its half-year rate |
|---|---|---|---|---|---|
| Electrical Americas Segment | 50% | +20.6% | +17.8% | +16.1% | 56% |
| Electrical Global Segment | 25% | +10.1% | +9.9% | +9.1% | 22% |
| Aerospace | 16% | +14.3% | +14.2% | +13.5% | 16% |
| Vehicle | 8% | -9.4% | -8.8% | -10.2% | 4% |
| eMobility Segment | 2% | -25.8% | -19.3% | -7.6% | 1% |
| Whole company | 100% | +12.8% | +11.5% | +10.4% | 100% |
On the filed split through 2025-12-31, if each business keeps its last half-year's growth, the company grows about 12% next year and 14% in year 3, against 15.5% over the last twelve months. A scenario, not a forecast: no business holds its rate.
The results
The numbers
Sales grew 16% over the twelve months to Jun 2026, faster than the 10% in the year to Dec 2025.
It keeps 13% of sales as profit.
It keeps 36¢ of each sales dollar after making what it sells, and spends 15¢ of it on selling and admin, its biggest running cost.
Shareholders' money earned 20% a year, up from 14% in the year to Dec 2021.
It turned 13% of sales into free cash, $3.93B over the last twelve months.
It owes $19.9B more than the cash it holds, about 4.0 years of the cash its operations bring in.
The share count fell 3.0% in 4.5 years.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-04. Fiscal years end in December.
| Dec 2021 | Dec 2022 | Dec 2023 | Dec 2024 | Dec 2025 | 12 mo to Jun 2026 | |
|---|---|---|---|---|---|---|
| Size and growth | ||||||
| Sales | $19.6B | $20.8B | $23.2B | $24.9B | $27.4B | $30.0B |
| Sales growth | +9.9% | +5.7% | +12% | +7.3% | +10% | +16% |
| Profit | ||||||
| Gross margin | 32% | 33% | 36% | 38% | 38% | 36% |
| Net margin | 11% | 12% | 14% | 15% | 15% | 13% |
| What growth costs, per sales dollar | ||||||
| Research and development | 3.1% | 3.2% | 3.3% | 3.2% | 2.9% | 2.8% |
| Selling, general and admin | 17% | 16% | 16% | 16% | 16% | 15% |
| Capital spending | 2.9% | 2.9% | 3.3% | 3.2% | 3.3% | 3.4% |
| Cash | ||||||
| Cash from operations | $2.16B | $2.53B | $3.62B | $4.33B | $4.47B | $4.95B |
| Free cash flow | $1.59B | $1.94B | $2.87B | $3.52B | $3.55B | $3.93B |
| Balance sheet | ||||||
| Cash and short-term investments | $568M | $555M | $2.61B | $2.08B | $803M | $695M |
| Debt | $8.58B | $8.65B | $9.27B | $9.15B | $9.89B | $20.6B |
| Net cash | −$8.01B | −$8.10B | −$6.66B | −$7.07B | −$9.09B | −$19.9B |
| Returns and shares | ||||||
| Shares (diluted) | 402M | 401M | 401M | 399M | 391M | 390M |
What growth costs
Day-to-day growth has made Eaton more profitable: research and office costs rise more slowly than sales. The recent growth that was bought runs the other way, because borrowing and the accounting charges for the purchases rose faster than the sales they brought.
The evidence under this - 3 claims
Income before tax per sales dollar fell from 18.4 cents in 2024 to 16.1 over the four quarters to June 2026 as amortisation, interest and acquisition charges rose with the purchases (C25, C26).
The last report (31 Jul)
Quarter ended June 2026, filed figures.
The second quarter of 2026 set a sales record, up 21%, and adjusted earnings beat forecasts, as they have for eight quarters. But 7 points of that growth were bought, and profit margins across the businesses slipped to 23.1% from 23.9%.
The bigger change was below the headline. Add-backs, the costs the company leaves out of its adjusted figure, were $1.04 of the $3.15 adjusted earnings per share, a third of it, against $0.44 a year earlier.
What it did to the thesisIt confirmed the demand but sharpened the doubt behind the Neutral view: a third of the growth was bought, margins slipped in a record quarter, and the costs left out of adjusted earnings grew sharply. The price pays for the adjusted figure, not the reported one.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $3.15 against $3.07 expected; $2.11 as filed, the gap being what the company adds back.
The evidence under this - 4 claims
What management did with the money
It borrowed to buy growth. Debt now stands at $18.5B against $695M of cash, and quarterly interest nearly tripled to $201M. Shareholders were still paid: the share count fell 0.5% over the year and the dividend was $4.16 a share in 2025. The vehicle business is being merged into Dana early next year.
Insiders in 2026Q2: 25 purchases and 24 sales, from their Form 4 filings.
The evidence under this - 3 claims
The price, and where we disagree
In short. Full. The price pays for Eaton's adjusted earnings, which leave out the write-off of what it bought. On the earnings it actually reports, the company expects no growth this year.
Analysts have grown more confident all year: the share rating Eaton a buy rose from 68.8% in January to 82.1% in September.
What that confidence rests on is tested on 3 November, when Eaton reports the September quarter. Either it holds its reported earnings forecast of $10.36 to $10.56 a share, or it cuts it again while the adjusted one rises. Underneath, the demand is not in question: electrical orders are up 41% in the Americas and 33% elsewhere.
The evidence under this - 2 claims
How we read the multiple
Buyers pay 43.1 times Eaton's reported earnings over the last year, against 31.2 over its own six years. That is fair only if the adjusted earnings are the real ones and the write-off of bought assets is mere bookkeeping.
On the reported line the company expects no growth this year, against 12% on its adjusted one. Even the write-off's size is not fixed: the $7.19B of bought assets such as customer relationships is still being valued.
Against its own history. Dearer for each dollar of profit and of cash profit than its own normal, while the reported line is guided to stand still.
The evidence under this - 3 claims
Priced against its rivals
Only Vertiv Holdings sells the same thing to the same buyers as a large part of what it does. A price comparison needs at least two, so the price is judged against its own history instead.
Where we disagree with the market
Eaton is a prime winner from data-centre electricity demand, and analysts have grown steadily more positive all year.
The demand is real, and so is the bought share of it. Reported and adjusted profit now sit $3.04 a share apart in this year's forecast.
Nobody headlined the cut. It shows only when February's forecast is read against July's: reported earnings per share lowered by $1.36, or 11.5%, while the adjusted figure was raised.
We would be wrong if reported earnings climb toward adjusted as the write-offs run down, with sales growing above 10% before acquisitions and no new deal.
What analysts say, and the evidence
The evidence under this - 3 claims
- The cut is arithmetically the acquisition: intangible amortisation and acquisition charges per share doubled between the two guidance dates, and both are excluded from the adjusted figure the company manages to.
- A buyer who believes purchase amortisation is a non-economic accounting charge would read the same two releases as unambiguously good news, since the adjusted number went up and organic growth was raised.
What could go wrong, and how we would know
The risks
- An expensive purchase. Boyd cost $9.55B and added $7.19B of intangible assets on a valuation still called preliminary. A write-down would land straight in earnings.
- Buyers writing the rules. The kind of giant customers that take 22% of electrical sales co-wrote the new rack-power design, and could take more of the work in-house.
- Margins slipping in a boom. Profit margins across the businesses fell 0.8 points in a quarter of record sales.
- A heavier balance sheet. Debt of $18.5B after the purchase has nearly tripled the quarterly interest bill.
The evidence under this - 7 claims
- Eaton names no customer, so the six may include distributors and engineering contractors rather than hyperscale operators - WESCO's own filing shows the distributor channel is large enough to hold that share.
- Specifying a rack power architecture is not the same as manufacturing medium-voltage switchgear, and nothing in the Diablo specification reaches the utility-side scope that is most of Electrical Americas.
What we still do not know
- How large the pile of unfilled orders is. Eaton publishes only its growth, so nobody outside can tell how long it covers the forecast.
- How fast the $7.19B of acquired intangibles will be written off. The filing calls the valuation preliminary.
- Who the six customers taking 22% of electrical sales are.
The evidence under this - 3 claims
What would change our view
- Neutral→AttractiveThe reported line grows too, at its own normal multiple
It needs all of:
- ○Reported earnings per share rise in 2027 over 2026, with the American electrical business still earning above a 24% margin.checked at the next results, due by 3 Nov
- ○The price falls to about 31.2 times reported earnings, its own six-year normal, from 43.1 today.about $307.92 today, 28% below the last close
- Neutral→UnattractiveOrders slow or the acquisition sours
It needs any of:
- ○Electrical orders, averaged over twelve months, grow less than 5% before acquisitions.checked at the next results, due by 3 Nov
- ○Boyd Thermal is written down, or a giant customer starts making its own electrical distribution.watched as it happens
We would also be wrong if
- Reported earnings per share fall in 2027 against 2026.
- The American electrical margin stays below 24% for two quarters running.
What is coming
- 3 November 2026 Q3 2026 results: Whether reported 2026 EPS guidance holds at $10.36-$10.56 or is cut again while the adjusted guide rises, and whether Electrical margins hold.
Every dated event ahead
- 3 November 2026 Q3 2026 results: Whether reported 2026 EPS guidance holds at $10.36-$10.56 or is cut again while the adjusted guide rises, and whether Electrical margins hold.
- February 2027 Q4 2026 results and 2027 guidance: The first full-year reported earnings carrying Boyd, and whether the 2027 reported guide grows or the gap to adjusted widens again.
- March 2027 Mobility combination with Dana closes: Whether the Reverse Morris Trust closes on its terms and the roughly $1.1B cash distribution goes to repaying the Boyd debt.
- March 2027 Boyd Thermal purchase price allocation finalised: Whether the $7.19B of intangibles and $3.73B of goodwill are revised, which moves the amortisation the reported earnings carry.
Since we wrote this
- 5 OctThesis reviewThe long case now sits under the verdictAfter the five-name pilot, the owner asked for the long case on every thesis.
- 4 OctThesis reviewOwner's checklist: revenue streams, cost of growth, management, catalystsThe owner's checklist found the method silent on who runs the company, what growth costs, where the money comes from and what is dated ahead; this pass fills those four blocks from the proxy and filings.
- 12 SepThesis writtenNeutral, medium convictionThe data-centre demand is real, but a third of the growth was bought, and the reported earnings forecast had been cut to flat while the adjusted one rose.
Also checked 1 time with nothing new to act on.
Sources 12
Sources - 12
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2026-02-26the business description, customer concentration, headcount by segment, the acquisitions note and the absence of any named competitorbacksC01C02C04C18C20C22C24C28C29C32C36C37C38
- S02primarycompany filing2026-07-31the Boyd Thermal purchase price allocation, the balance sheet and the measurement-period languagebacksC02C10C11C31C38
- S03primarycompany filing2026-07-31orders, backlog, segment margins, the two guidance ranges and the adjusted earnings reconciliationbacksC03C04C05C06C07C08C09C13C20C23C24C25C26C27C28
- S04primarycompany filing2026-02-03the original 2026 guidance, issued five months before it was cut, and the 2025 adjusted reconciliationbacksC12C27
- S05primarytranscript2026-07-31Eaton second-quarter 2026 earnings call transcriptmanagement's account of non-data-centre end markets and order growth; the analyst question section, which is a separate origin from the answersread, but no claim rests on it
- S06primarycompany filing2026-02-13a direct competitor's own naming of Eaton as one of four large-scale global competitors - the outside evidence for the moatbacksC21
- S07primarygovernment data2024-12-20US Department of Energy - Berkeley Lab report on data centre electricity demand US Department of Energythe measured base and the 2028 projection behind the prize and the driver
total data center electricity usage climbed from 58 TWh in 2014 to 176 TWh in 2023 ... data centers consumed about 4.4% of total U.S. electricity in 2023 ... are expected to consume approximately 6.7 to 12% of total U.S. electricity by 2028
backsC15 - S08primarygovernment data2026-06-30Lawrence Berkeley National Laboratory - United States Data Center Energy Usage Report, 2025 Update Lawrence Berkeley National Laboratorythe upward revision to the 2030 projection
data centers could account for 11.8% of total U.S. electricity by 2030 ... could be between 9.5 and 15.3% of total U.S. electricity use by 2030
backsC16 - S09primaryindustry data2025-10-14Open Compute Project Foundation - announcement of the Diablo 400 rack and power specification Open Compute Project Foundationthe evidence that the buyers are specifying the rack power architecture themselves
Mt Diablo (Diablo 400) power-rack sidecar for powering AI clusters, co-authored by Google, Meta and Microsoft ... a disaggregated power rack, or sidecar rack, pushing power delivery from today's 48 volts direct current (VDC) within the rack to either +/-400 VDC or 800VDC ... The Diablo specification defines power solutions for high-density AI racks, enabling IT racks from 100 kilowatts up to 1 megawatt.
backsC17 - S10primaryvendor data2026-09-12Research pack frozen at publicationthe valuation multiples and their six-year medians, the analyst consensus series, the insider base rate, the headcount series and the segment historybacksC03C20C25C26C29C30
- S11primarycompany filing2026-06-11the counterparty and structure of the Mobility separation, and the claim that it is accretive to growth and margins on closingbacksC04
- S12primarycompany filing2026-03-13beneficial ownership as of 1 February 2026, the 5% holders, the 2025 annual incentive goals and results, the long-term incentive design and the 2023-2025 ESIP payout, the CEO transitionbacksC32C33C34