Eaton Corporation plc (ETN) is scheduled to report third-quarter 2014 results before the opening bell on Oct 29. Last quarter, Eaton Corporation posted earnings in line with expectations. Let’s see how things are shaping up for the third quarter.
Factors Influencing this Quarter
Dublin, Ireland-based Eaton Corporation has consistently invested in R&D programs to produce new products and enhance existing ones. In the first half of 2014, the company spent $0.3 billion in R&D expenses. The company is introducing a new line of products, which promotes fuel efficiency and efficient power management solutions.
However, soft demand from Europe and China could impact the overall performance of the company. Incidentally, Eaton derives a large part of its revenues from international sales.
In addition, Eaton’s dependence on suppliers for various raw materials and components can negatively impact its operational results, as prices of logistics are expected to continue to rise.
Earnings Whispers?
Our proven model does not conclusively show that Eaton Corporation will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.63%. This is because the Most Accurate Estimate is at $1.21 per share while the Zacks Consensus Estimate is at $1.23 per share.
Zacks Rank: Eaton Corporation’s Zacks Rank #5 (Strong Sell) when combined with a -1.63% ESP makes an earnings beat highly unlikely.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:
Celanese Corporation (CE) has an earnings ESP of +1.71% and a Zacks Rank #2 (Buy).
Ashland Inc. (ASH) has an earnings ESP of +2.21% and a Zacks Rank #3 (Hold).
Cameco Corporation (CCJ) has an earnings ESP of +40.00% and a Zacks Rank #3 (Hold).
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