We're raising our Eaton price target after sellers got the earnings all wrong

An important development from the financial markets: Eaton delivered a great quarter; Tuesday's price action in the stock be darned. This power management provider has orders as far as the eye can see, driven largely by the AI data center boom. Revenue for the first quarter ended March 31 increased nearly 17% year-over-year to a record $7.

45 billion, ahead of the LSEG compiled analysts' consensus estimate of $7. Adjusted earnings per share (EPS) rose a little over 3% to $2. 81, also outpacing the $2.

Economic Details

74 expected, according to LSEG. ETN YTD mountain Eaton YTD While trimming some of their earlier losses, Eaton shares were still down more than 2% in afternoon trading to $412 each. We bought the dip Tuesday morning at $402.

Explaining the buy, Jim Cramer later said on the Morning Meeting: "We are buying because the market is wrong. " With the trade, we upgraded Eaton stock back to our buy-equivalent 1 rating and raised our price target to $450 from $425. Bottom line There is no doubt about it; Eaton shares came into Tuesday's print on a roll.

They hit an all-time intraday high of $435 each on Friday. What that means is that there was/is "hot money" in the stock. Hot money is a term used for investors who get in and get in quickly, like traders, looking to make a quick profit with minimal interest in the longer-term investment thesis unfolding.

Analyst Views

They come in for the momentum and bail at the first sign of trouble. The hot money in Eaton was focused on two things: a miss in Electrical Americas' profitability, and what appears to be conservative guidance. We, however, think those concerns are shortsighted.

You're not in this name for one quarter, or even the next six months. You're in it because there is an insatiable demand for energy and electrification solutions for the foreseeable future. For that reason, we think it's more prudent to instead focus on quarterly revenue topping expectations in all segments and an acceleration of backlog growth.

A crucial indicator of future financial performance, the backlog at Eaton saw 44% growth in Electrical Americas, 73% growth in Electrical Global, and 28% growth in Aerospace. Perhaps even more telling, CEO Paulo Ruiz said on the post-earnings call that for the combined Electrical segments, Eaton's total data center backlog has "grown to 228GW, or 12 years of backlog at a 2025 build rate, up from the 11 years in our last update. " GW refers to gigawatts.

Financial markets are tracking the development closely as investors assess the likely impact.