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Can Eaton Corp. (ETN) Keep the Earnings Streak Alive in Q1?

Eaton Corp ETN will release first quarter 2016 financial results before the market opens on Apr 29, 2016. In the prior quarter, this well-known power management company reported a positive earnings surprise of 7.34%. We expect Eaton to surpass earnings estimates this time around as well.

Why a Likely Positive Surprise?

Our proven model shows that Eaton Corp. is likely to beat earnings because it has the right combination of two key ingredients. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Positive Zacks ESP: The Most Accurate estimate stands at 86 cents while the Zacks Consensus Estimate is pegged at 85 cents, resulting in +1.18% ESP.

Zacks Rank: Eaton’s Zacks Rank #3 increases the predictive power of the ESP, and when combined with +1.18% ESP, a beat appears to be quite likely this quarter.

We caution against stocks with a Zacks Rank #4 or #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Surprise History

The above chart indicates that Eaton was able to register positive earnings surprises in all of the last four quarters. The average positive surprise was 3.04%.

What is Driving the Better-Than-Expected Earnings?

Eaton expects organic revenues in the first quarter to decline 5% sequentially, primarily due to lower organic growth in the majority of its operating segments.

However, Eaton is expected to benefit from its restructuring activities and share repurchases completed in 2015, which will have a positive impact on first quarter results.

Margins from the Aerospace segment have been strong, while bookings from defense and commercial customers are expected to keep the momentum in the first quarter and the rest of the year.

Other Stocks to Consider

Other players in the Machinery-electrical space worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

SPX FLOW, Inc. FLOW has an earnings ESP of +50.0% and carries a Zacks Rank #1. It is expected to report earnings before the market opens on May 4, 2016.

Emerson Electric Co. EMR has an earnings ESP of +3.17% and carries a Zacks Rank #2. It is expected to report earnings before the market opens on May 3, 2016.

Regal Beloit Corporation RBC has an earnings ESP of +0.92% and carries a Zacks Rank #2. It is expected to report earnings after the market closes on May 9, 2016.

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SPX FLOW INC (FLOW): Free Stock Analysis Report
 
EMERSON ELEC CO (EMR): Free Stock Analysis Report
 
EATON CORP PLC (ETN): Free Stock Analysis Report
 
REGAL BELOIT (RBC): Free Stock Analysis Report
 
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