Eaton Corporation Plc

Eaton Corporation Plc (NYSE: ETN) is a global power management Company providing solutions that help customers manage mechanical, electrical and hydraulic power.

Investment Highlights - Eaton Corporation Plc – Expensive at USD 120.44

• Due to the impact of the covid-19, the Company witnessed a decline in financial performance in FY2020 along with lower volumes.
• In the last week, the Company delivered a negative return of ~0.25% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings and Price/Book Value multiples of the Eaton Corporation Plc are currently higher as compared to the corresponding multiples of the Machinery, Tools, Heavy Vehicles, Trains & Ships industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 53 level), which means the stock price could decline in the short term.

Key Risks

• The Company is also exposed to various operational and financial risks with cybercrime, regulatory changes, and foreign exchange fluctuations.
• The business is exposed to economic and market fluctuations, which may adversely affect the business and financial performance.

Financial Highlights – Q4 and FY2020 (31 December 2020) (released on 2 February 2021)

(Source: Quarterly Report, Company Website) 

• In the fourth quarter and the financial year 2020, due to lower sales from Electrical, Hydraulics and Vehicle businesses, the revenue declined to $4,687 million and $17,858 million, respectively.
• The Company has shown improvement in net income in the fourth quarter, while for FY2020, the net income declined.
• The cash balance as on 31 December 2020 stood at $438 million (30 December 2019: $370 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Both the top-line and the bottom-line performance declined, with lower profitability margins. ETN managed to improve liquidity position, while reported a poor balance sheet. The Company has delivered decent operational performance and was ahead of expectations, reflecting better cost control. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 56.42 and USD 130.00, respectively.

Based on the factors as highlighted above, we believe the stock of Eaton Corporation Plc is “Expensive” at the closing price of USD 120.44 (as on 2 February 2021), with support from few catalysts needs to be evaluated at a later stage such as benefits of cost control measures taken to offset the volume decline due to covid-19.

National Beverage Corp

National Beverage Corp (NASDAQ: FIZZ) is a US-based holding Company which is engaged in the business of developing and selling flavoured beverage products in North America.

Investment Highlights - National Beverage Corp – Expensive at USD 121.61

• Despite the improved financial performance, the Company faces disruption in the supply chain and lower demand due to covid-19.
• In the last week, the Company delivered a negative return of ~6.09% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Cash Flow multiples of the National Beverage Corp are currently higher as compared to the corresponding multiples of the Beverages industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 58 level), which means the stock price could decline in the short term.

Key Risks

• Any change in the regulations and government policies could affect the overall business of the Company.
• Other risks such as failure to expand portfolio due to the rising health concerns and inventory shortage due to supply chain disruption presented by COVID-19 mayhem, could hamper the operational and financial performance.

Financial Highlights – Q2 and H1 FY2021 (31 October 2020) (released on 10 December 2020)

(Source: Quarterly Report, Company Website) 

• In the second quarter and first half of the financial year 2021, driven by an increase in case volume and slight average selling price per case, the net sales increased by 8% and 7.6%, respectively.
• The profitability for the period improved, reflecting higher revenue and lower general, admin and selling expenses.
• The cash balance as on 31 October 2020 increased by $172 million to $405 million (2 May 2020: $305 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the second quarter and the first half of the financial year 2021. Both the revenue and profitability margins improved along with liquidity position. FIZZ has a well-positioned balance sheet and reported increased net cash from operating activities. The Company’s operations were impacted by the outbreak of covid-19 pandemic and is not able to provide any meaningful guidance for full-year 2021. The stock made a 52-week low and high of USD 33.55 and USD 196.43, respectively.

Based on the factors as highlighted above, we believe the stock of National Beverage Corp is “Expensive” at the closing price of USD 121.61 (as on 2 February 2021), with support from few catalysts needs to be evaluated at a later stage such as benefits of increased working capital.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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