We're raising our Eaton price target after sellers got the earnings all wrong

Eaton delivered a great quarter; Tuesday's price action in the stock be darned. This power management provider has orders as far as the eye can see, driven largely by the AI data center boom. Revenue for the first quarter ended March 31 increased nearly 17% year-over-year to a record $7.45 billion, ahead of the LSEG compiled analysts' consensus estimate of $7.08 billion. Adjusted earnings per share (EPS) rose a little over 3% to $2.81, also outpacing the $2.74 expected, according to LSEG. ETN YTD mountain Eaton YTD While trimming some of their earlier losses, Eaton shares were still down more than 2% in afternoon trading to $412 each. We bought the dip Tuesday morning at $402. Explaining the buy, Jim Cramer later said on the Morning Meeting: "We are buying because the market is wrong." With the trade, we upgraded Eaton stock back to our buy-equivalent 1 rating and raised our price target to $450 from $425. Bottom line There is no doubt about it; Eaton shares came into Tuesday's print on a roll. They hit an all-time intraday high of $435 each on Friday. What that means is that there was/is "hot money" in the stock. Hot money is a term used for investors who get in and get in quickly, like traders, looking to make a quick profit with minimal interest in the longer-term investment thesis unfolding. They come in for the momentum and bail at the first sign of trouble. The hot money in Eaton was focused on two things: a miss in Electrical Americas' profitability, and what appears to be conservative guidance. We, however, think those concerns are shortsighted. You're not in this name for one quarter, or even the next six months. You're in it because there is an insatiable demand for energy and electrification solutions for the foreseeable future. For that reason, we think it's more prudent to instead focus on quarterly revenue topping expectations in all segments and an acceleration of backlog growth. A crucial indicator of future financial performance, the backlog at Eaton saw 44% growth in Electrical Americas, 73% growth in Electrical Global, and 28% growth in Aerospace. Perhaps even more telling, CEO Paulo Ruiz said on the post-earnings call that for the combined Electrical segments, Eaton's total data center backlog has "grown to 228GW, or 12 years of backlog at a 2025 build rate, up from the 11 years in our last update." GW refers to gigawatts. As noted in our trade alert, the Boyd Thermal acquisition is also off to a strong start, with first quarter revenue for the acquired business increasing over 100%, and full-year 2026 sales are expected to come in at about $1.7 billion, up from the $1.1 billion realized in 2025. On the call, Ruiz said the Boyd deal gives Eaton "critical liquid‑cooling technology, further advancing our grid-to-chip strategy." The so-called grid-to-chip strategy refers to Eaton's holistic goal of managing power from the utility grid all the way into AI data centers to the chip level. Eaton solutions were all over the CoreSite AI-optimized data center in Secaucus, New Jersey, that my Investing Club colleague Natasha Abellard toured last month. Strong as Eaton is, the future looks even stronger; it remains on track to spin off its Mobility segment, which, despite strong results in the reported quarter, is an anchor on the company's overall growth profile. Why we own it Eaton has exposure to several important megatrends like electrification, energy transition, and infrastructure spending. Data centers use the company's power management solutions and electrical equipment to keep up with the heightened demand for more AI computing power. Competitors : Parker-Hannifin , DuPont and Honeywell Most recent buy : May 5, 2026 Initiated : Nov. 15, 2023 Commentary In Electrical Americas , revenue was an all-time record, growing 20% year over year, with 14% coming from organic opportunities, 5% attributable to acquisitions, and another 1% benefit resulting from foreign exchange dynamics. Within the key segment, data center revenue increased 50% year over year, while orders surged 240% versus the year-ago period. Though segment profit came up a bit short of expectations, the result was nonetheless a first-quarter record for the company. The Data Centers & Distributed IT end-market accounted for 21% of fiscal 2025 sales. Pretty much on par with Commercial & Institutional. On the call, management cited winter storms in January and February as a negative impact on both operating facilities and the supply chain in the Electrical Americas business. However, the team did note that March was better — and in April, the first month of the current quarter, was also strong. They also view the first quarter as a bottom for both segment sales and profit margin performance. In Electrical Global , both revenue and segment profit came in better than expected, with both also representing all-time records for the company. The 21% revenue growth was the result of a 9% organic increase, along with a 6% tailwind from acquisitions and 6% benefit from foreign exchange dynamics. In its 2025 annual report, Eaton highlighted products that help customers, including data centers, manage power in "reliable, efficient, safe and sustainable" ways. For example, its dual-source vacuum fault interrupter transformer increases uptime at complex facilities. Aerospace was another bright spot, with sales, segment profit, and the segment margin all coming in at all-time highs, and ahead of expectations. The 16% revenue growth was the result of a 9% organic increase compounded by a 5% tailwind from acquisitions and 2% benefit from foreign exchange. Products here include main engine fuel pumps for commercial aircraft and hydraulic power packs for business jets. Mobility , which is the combination of the old Vehicle and eMobility segments, reported a slight miss on the top line. But thanks to better-than-expected margin performance, it managed to outpace expectations for segment profit. An organic revenue decline of 6% was partially offset by a 2% foreign exchange tailwind. On the release, management affirmed that the segment is on track to be spun off by the first quarter of 2027. Eaton called out in last year's annual report a product called a FLEX power distribution unit, which "manages, protects and monitors power distribution for electrified commercial vehicles." Guidance Eaton raised its full-year outlook for organic growth as well as the midpoint of its adjusted EPS forecast, even as management trimmed its margin outlook. It now expects organic growth of 9% to 11%, up from the prior 7% to 9% range, and better than the 8.85% the Street was expecting, according to FactSet. Margins are expected to be 24.1% to 24.5%, a decrease from the prior 24.6% to 25% range, and below the 24.7% expected. Adjusted EPS is expected to be in the range of $13.05 to $13.50. That represents a 5-cent per share increase on the low end, putting the forecast roughly in line with Street expectations. Despite the improved full-year view, the second (current) quarter outlook was mixed. Organic growth is projected to be in the range of 9% to 11%, better than the 8.5% consensus estimate. Segment margins are expected to be 22.6% to 23%, ahead of the 22.7% estimates. Adjusted EPS is expected to be in the range of $3 to $3.10, which is a miss versus the $3.13 estimate. Underlying management's full-year forecast is strong growth in the Data Centers & Distributed IT, Electric Vehicles, and Commercial Aerospace end markets. Solid growth is also expected in the Utility and Defense Aerospace. Modest growth is expected in the Commercial & Institutional, and Machinery. Slight growth expected in ICE (internal combustion engine) Light Vehicles, Commercial Vehicles, and Industrial Facilities. The Residential end market is expected to be flat for the year. (Jim Cramer's Charitable Trust is long ETN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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