Eaton (ETN) Stock Technicals Improve, Chart Indicates 10% Upside

It might not rise as quickly as you'd like, but we see the stock ultimately moving towards the $60 mark.
By Bruce Kamich ,

NEW YORK (TheStreet) -- We last discussed Eaton Corp.  (ETN) - Get Reporton October 21. We said that as prices sank lower in August and September, the momentum readings made higher lows, and this told us that the rate of price declines had slowed. We noted that this is called a bullish divergence and could foreshadow higher prices ahead.

Since our last update on the ETN chart, see above, it has improved. Prices have rallied above the 50-day simple moving average (MA), and the volume of shares traded has increased confirming the advance. Chartists like to see volume expand in the direction of the trend.

This longer-term chart, above, hasn't changed much. Prices are still below the declining 40-week MA, the On-Balance-Volume line is stabilizing on this weekly timeframe, and prices are still holding above the prior resistance around $50 from early 2012.

After the recent sharp upside gains for ETN, we could see two possible directions for prices. Prices could consolidate around current levels before the next move up to the $60 area where it should encounter some resistance. The second possible course for prices could be to just continue to spring higher towards $60 before a profit taking reaction develops.

Separately, TheStreet Ratings team rates EATON CORP PLC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

We rate EATON CORP PLC (ETN) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, reasonable valuation levels, expanding profit margins, impressive record of earnings per share growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electrical Equipment industry. The net income increased by 212.9% when compared to the same quarter one year prior, rising from $171.00 million to $535.00 million.
  • 35.95% is the gross profit margin for EATON CORP PLC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.95% is above that of the industry average.
  • The current debt-to-equity ratio, 0.56, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.84 is somewhat weak and could be cause for future problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electrical Equipment industry and the overall market on the basis of return on equity, EATON CORP PLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • You can view the full analysis from the report here: ETN
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