ETN peaked and rolled over this past May and June, according to the chart above. Prices broke below the flat 50-day moving average. The On-Balance-Volume line (OBV) turned lower in May and continues on a "glide path." An upturn in the OBV line would be a positive for the bulls. Unlike many stocks that bounce temporarily to the upside before they resume their decline, ETN traded sideways before the next decline.
There are two positives in this chart. First, in September and October the volume of shares traded is relatively heavy as ETN has bounced off the $50 area three times. One way of interpreting this trend is that buying interest in ETN is as aggressive as the selling interest. Volume is relatively heavy and prices are holding steady. Another positive clue comes from the momentum indicator. As prices sank lower in August and September, the momentum readings made higher lows -- this tells us that the rate of price declines has slowed. This is called a bullish divergence and can foreshadow higher prices ahead.
In the longer-term chart of ETN, above, we see how ETN rolled over starting in late 2013. Prices have declined down to a former resistance area from early 2012. Former resistance levels can do a role reversal and become a support area. We'll be watching to see if that does indeed happen with ETN.
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 a number of 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