Morgan Stanley: Electrical businesses underpin growth; Eaton earnings forecasts raised

How much were the earnings forecasts raised?

After the third-quarter results, Morgan Stanley raised its forecast for Eaton’s fourth-quarter 2026 EPS from $ 4.23 to $ 4.30.
The firm raised its full-year EPS forecasts for 2026, 2027 and 2028 from $ 13.77, $ 16.78 and $ 19.55, respectively, to $ 13.93, $ 16.89 and $ 19.78. These figures still include the Mobility business.

The firm expects organic growth in both Electrical Americas and Electrical Global to be just above 20% in the fourth quarter of 2026. This view takes seasonality into account: Americas revenue typically grows by a low single-digit percentage quarter over quarter in the fourth quarter, while Global revenue is usually flat or declines by a low single-digit percentage.
For 2027, the firm expects organic growth in both businesses to exceed around 15%, with an incremental margin of about 30% on incremental revenue. In Global, growth excluding Boyd is expected to be in the low double digits; Boyd is expected to grow by more than 50% and to be included in organic growth from mid-March 2027.

Morgan Stanley expects Electrical Americas’ margin to reach 31.2% in the fourth quarter of 2026 and 28.7% for the full year, but to remain slightly below company guidance: ongoing price and cost pressures will limit margin improvement.
Electrical Global’s fourth-quarter margin is expected to decline sequentially by about 1.2 percentage points, in line with typical seasonality, and reach 20.1% for the full year, slightly above company guidance.
Aerospace orders and backlog are expected to support continued growth, but the supply chain may constrain an acceleration in growth. The firm also expects company-level expenses to increase by about $50 million year over year in 2027, mainly due to interest; the tax rate is projected to rise from 18.5% in 2026 to 19.5%.

Management expects the Mobility spin-off to be completed in the first quarter of 2027. Morgan Stanley’s current model still includes the business and estimates its organic growth at about 10% in the fourth quarter of 2026, followed by low-single-digit growth.
The firm also provides pro forma forecasts excluding Mobility: EPS of $16.09 and $19.02 for 2027 and 2028, respectively, below the $16.89 and $19.78 forecasts that include the business.
Eaton has entered into a definitive agreement to spin off Mobility and combine it with Dana; Morgan Stanley is acting as financial adviser on the transaction.