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Hawk’s Nest

Bulls Adjust Calls Monthly in Industrial Leaders Like Eaton

by | Mar 31, 2024

Eaton (ETN) is one of several Industrials that has seen large call buys adjust monthly since October 2023 and on 11/15/23 we highlighted Eaton positioning which has seen shares climb another 40%+. Members have been able to ride along with these massive moves due to options flow signals.

Here is what we wrote on 11/15/23:

Eaton (ETN) on 11/9 saw 1000 December $220 calls bought for $8.40 offer adjusting Nov. calls similar to peers in the industrial sector and then followed by 11/15 buyers of 1000 December $220 calls adjusting up to $230 strike into strength. ETN also still has size call buys in open interest from late summer when 275 January 2025 $220 calls opened for $35.40 for over $1M and the Jan 2205 $230 calls bought on 8/31 for $26.20 over 250x while the Jan 2024 $210 calls still holding 700x from buys at $18.10. The $90.6B industrial company trades at 23x earnings, 4.0x sales, FCF yield of 4.0% and a dividend yield of 1.6% with revenues expected to grow +11% in FY23 and growth estimated at +7% in FY24. Eaton Corporation plc is a power management company. The Company’s segments include Electrical Americas, Electrical Global, Aerospace, Vehicle, and eMobility. The Electrical Americas segment consists of electrical components, industrial components, power distribution and assemblies, residential products, single phase power quality and connectivity, wiring devices and others. The industrial sector is rebounding nicely off the market lows and could be a group that sees larger money flow rotation into year end and early 2024 as rates peak and inflationary cost pressures ease. ETN is coming off a solid report beating EPS but revenues a bit light inline however the market liked the upside guidance the firm gave. Shares have been rising since they reported earnings a few weeks ago near the 200 level that held as strong support on the market correction and quickly regained its 55 day MA above 215 which is now a solid level to lean against as support on any dip into year end. ETN has seen a nice bounce this week with most stocks and getting a little extended short term into 225 but a retest of the 8 EMA below here at 221 would be more ideal for an entry that should carry the stock to new highs above 240. Average analyst price target is $233. JPM upgraded the stock to Overweight and $230 target last month and Morgan Stanley raising its target to $238 keeping an Overweight as they cite strong megaproject and electrification environment. While the backlog is likely to level off until “the wave of orders” in 2024, supply is likely a bigger gating factor than demand and FY24/FY25 consensus looks low, even with portfolio growth context. Argus is bullish as they recently boosted its target to $250 from $195 and keeps a Buy rating saying company looks well positioned to deliver high single-digit EPS growth over the long term, driven by margin improvement, share buybacks, and modest top-line growth. Eaton’s balance sheet also looks healthy, and the company has a record of steady dividend growth. Short interest is at 1.1%. Hedge fund ownership fell 4%.