Stock Analysis on Net
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Eaton Corp. plc (NYSE:ETN)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Eaton Corp. plc, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 18.85%
01 FCFF0 3,918
1 FCFF1 4,158 = 3,918 × (1 + 6.14%) 3,499
2 FCFF2 4,520 = 4,158 × (1 + 8.69%) 3,200
3 FCFF3 5,028 = 4,520 × (1 + 11.25%) 2,995
4 FCFF4 5,723 = 5,028 × (1 + 13.81%) 2,868
5 FCFF5 6,659 = 5,723 × (1 + 16.37%) 2,808
5 Terminal value (TV5) 312,177 = 6,659 × (1 + 16.37%) ÷ (18.85% – 16.37%) 131,650
Intrinsic value of Eaton Corp. plc capital 147,020
Less: Debt (fair value) 9,588
Intrinsic value of Eaton Corp. plc common stock 137,432
 
Intrinsic value of Eaton Corp. plc common stock (per share) $353.84
Current share price $448.19

Based on: 10-K (reporting date: 2025-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Eaton Corp. plc, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 174,077 0.95 19.73%
Debt (fair value) 9,588 0.05 2.88% = 3.52% × (1 – 18.18%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 388,400,000 × $448.19
= $174,076,996,000.00

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (17.10% + 16.80% + 15.80% + 15.30% + 25.90%) ÷ 5
= 18.18%

WACC = 18.85%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Eaton Corp. plc, PRAT model

Microsoft Excel
Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense, net 241 130 151 144 144
Net income attributable to Eaton ordinary shareholders 4,087 3,794 3,218 2,462 2,144
 
Effective income tax rate (EITR)1 17.10% 16.80% 15.80% 15.30% 25.90%
 
Interest expense, net, after tax2 200 108 127 122 107
Add: Cash dividends paid 1,626 1,500 1,379 1,299 1,219
Interest expense (after tax) and dividends 1,826 1,608 1,506 1,421 1,326
 
EBIT(1 – EITR)3 4,287 3,902 3,345 2,584 2,251
 
Short-term debt 1 — 8 324 13
Current portion of long-term debt 1,136 674 1,017 10 1,735
Long-term debt, excluding current portion 8,758 8,478 8,244 8,321 6,831
Total Eaton shareholders’ equity 19,425 18,488 19,036 17,038 16,413
Total capital 29,320 27,640 28,305 25,693 24,992
Financial Ratios
Retention rate (RR)4 0.57 0.59 0.55 0.45 0.41
Return on invested capital (ROIC)5 14.62% 14.12% 11.82% 10.06% 9.01%
Averages
RR 0.51
ROIC 11.92%
 
FCFF growth rate (g)6 6.14%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 241 × (1 – 17.10%)
= 200

3 EBIT(1 – EITR) = Net income attributable to Eaton ordinary shareholders + Interest expense, net, after tax
= 4,087 + 200
= 4,287

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,287 – 1,826] ÷ 4,287
= 0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,287 ÷ 29,320
= 14.62%

6 g = RR × ROIC
= 0.51 × 11.92%
= 6.14%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (183,665 × 18.85% – 3,918) ÷ (183,665 + 3,918)
= 16.37%

where:

Total capital, fair value0 = current fair value of Eaton Corp. plc debt and equity (US$ in millions)
FCFF0 = the last year Eaton Corp. plc free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Eaton Corp. plc capital

FCFF growth rate (g) forecast

Eaton Corp. plc, H-model

Microsoft Excel
Year Value gt
1 g1 6.14%
2 g2 8.69%
3 g3 11.25%
4 g4 13.81%
5 and thereafter g5 16.37%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.14% + (16.37% – 6.14%) × (2 – 1) ÷ (5 – 1)
= 8.69%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.14% + (16.37% – 6.14%) × (3 – 1) ÷ (5 – 1)
= 11.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.14% + (16.37% – 6.14%) × (4 – 1) ÷ (5 – 1)
= 13.81%