Eaton Earnings: Data Centers Continue To Be a Notable Growth Driver; Fair Value Estimate Raised

Narrow-moat-rated Eaton reported robust second-quarter results as the company’s electrical Americas segment continued to benefit from increased data center demand. Eaton's revenue and earnings per share came in slightly above FactSet consensus estimates. On the back of these strong results, management increased guidance for the company and now expects full-year organic sales growth of 8%-9% and segment margins of 23.3%-23.7%, both of which represent a 50-basis-point increase relative to prior midpoint guidance. After incorporating this improved outlook into our model, we have raised our fair value estimate to $229 per share from $225. Nevertheless, Eaton's current stock price trades well above our increased fair value estimate. While the company has strong growth prospects, we think market expectations are overly optimistic.