Eaton (ETN) is executing well across datacenters, utility and electrification, with strong order momentum and backlog growth supporting an expected pickup in organic volume, operating leverage and margin expansion in H2, RBC Capital Markets said.
Datacenter demand was a standout, with orders rising 240% year on year, alongside strong backlog growth across segments. Electrical Americas backlog increased 44%, Electrical Global backlog rose 73% and the order pipeline expanded 81%, the brokerage said in a Tuesday note.
The outsized contraction in Electrical Americas margins in Q1 was attributed to capacity ramps and commodity inflation in steel, copper, aluminum and silver ahead of April 1 price increases. However, the Boyd Thermal acquisition is tracking above its previously guided $1.7 billion full-year sales, potentially adding upside, RBC said.
The firm described the margin pressure as a "high-quality problem" tied to accelerating backlog and capacity expansion.
The company's plan to spin off its Vehicle and eMobility segments by end of Q1 2027 is expected to further shift Eaton's mix toward higher-growth datacenter and aerospace exposure, according to the note.
RBC reiterated its outperform rating on the stock and boosted its price target to $484 per share from $457.
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