Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✗Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$0
—
$2.1B
—
—
—
$8.3B
$543.0M
2017
$20.4B
—
$2.1B
—
—
—
$7.7B
$561.0M
2018
$21.6B
$2.1B
$2.1B
$2.5B
13.3%
9.9%
$7.1B
$283.0M
2019
$21.4B
$2.2B
$2.9B
$2.5B
13.7%
10.3%
$8.1B
$370.0M
2020
$17.9B
$1.4B
$2.6B
$1.8B
9.4%
7.9%
$8.1B
$438.0M
2021
$19.6B
$2.1B
$1.6B
$2.5B
13.1%
10.9%
$8.6B
$297.0M
2022
$20.8B
$2.5B
$1.9B
$2.8B
14.5%
11.9%
$8.3B
$294.0M
2023
$23.2B
$3.2B
$2.9B
$3.4B
16.9%
13.9%
$9.3B
$488.0M
2024
$24.9B
$3.8B
$3.5B
$3.9B
20.5%
15.3%
$9.2B
$555.0M
2025
$27.4B
$4.1B
$3.6B
$4.2B
21.0%
14.9%
$9.9B
$622.0M
Warren & Charlie
Buffett / Munger — quality, moat & valuation
Eaton Corp plc (ETN) — Investment Memo
🐂 The Bull Case (Warren's voice)
The "Toll Bridge" on Electrification: Eaton doesn't just sell parts; they provide the essential plumbing for the global energy transition. Whether it's AI data centers, EV infrastructure, or grid modernization, the power must be managed. Eaton sits at the bottleneck.
Durable Switching Costs: Once an Eaton system is engineered into a skyscraper or a Boeing aircraft, it is effectively permanent. The cost of ripping out the "central nervous system" to save 5% on hardware is a risk no sane facility manager will take.
Exceptional Capital Efficiency: An ROE expansion from 9.4% to 21.0% is not an accident. It signals a business that has found a way to scale without destroying its returns—a rare feat in heavy industrial.
The "Sweet Spot" Pricing: To move this from a "great business" to a "great investment," we need it at a price where the dividend is a meaningful yield and the growth is free. I’d start getting interested near $130, but I'd be aggressive at $100.
🐻 The Bear Case (Charlie inverts)
The "Accrual Mirage": The most glaring red flag is the divergence between Net Income (16% CAGR) and FCF (6.4% CAGR). When profits sprint and cash crawls, you aren't growing a business; you're growing an accounting entry. If the FCF gap doesn't close, the DCF is a fairy tale.
Technological Leapfrogging: Permanent impairment occurs if the grid shifts from centralized "big iron" switchgear to a fully decentralized, solid-state power architecture that renders Eaton's mechanical legacy obsolete. We don't bet on the horse if the car has been invented.
The "Empire-Building" Trap: Management is aggressive with bolt-ons. While they look strategic now, a string of overpaid acquisitions in a peaking cycle could lead to massive goodwill impairments that wipe out years of organic gains.
The Verdict on Risk: The accounting divergence is the most likely threat. Timeframe: Immediate to 3 years. If the cash doesn't materialize, the multiple collapses.
💰 Valuation & Margin of Safety
Reacting to the DCF estimate of $173.80:
Intrinsic value estimate: $173.80 per share.
25% margin of safety entry: $130.35(conservative).
50% margin of safety entry: $86.90(Buffett's ideal).
Current Status: Wildly expensive. With the market price significantly above the DCF, the market is pricing in "perfection" and growth rates far beyond the conservative 6.4% FCF estimate. We are paying for the hope of the energy transition, not the reality of the cash flow.
Verdict: PASS
The business is a wonderful compounder, but the price is a fantasy. The widening gap between net income and free cash flow creates too much uncertainty to pay a premium. We wait for the market to realize the cash isn't keeping up with the accounting.
Other Analyst Views· Lynch · Damodaran
Research Notes· Money Model · Moat · Financials · Management
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.