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TE Connectivity: Harsh Environment, SubCom to Drive Growth
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On Dec 6, 2016, we issued an updated research report on TE Connectivity Ltd. (TEL - Free Report) . A market leader in the connectivity and sensor business, TE Connectivity boasts a comprehensive technology and product portfolio that helps it withstand economic distress and cyclical risks.
Over the past three months, TE Connectivity shares recorded an average return of 9.7%, outperforming the Zacks categorized Electronics industry average, which inched up 1.6%. Encouragingly, the company has a striking earnings surprise history, with an average surprise of 5.6% in the trailing four quarters, beating estimates all through.
In its recently reported fourth-quarter fiscal 2016 results, TE Connectivity’s earnings surpassed the Zacks Consensus Estimate by 6.7% and surged a whopping 41% from the prior-year tally. The impressive earnings were driven by robust growth in harsh environment and SubCom businesses. The company’s continued productivity improvements also reflected in the quarter’s earnings.
In the coming quarters, TE Connectivity expects its harsh-environment application business to perform well, mainly supported by secular trends like increased safety features, autonomous driving systems, higher emission standards and infotainment. Further, its SubCom business, which has a $1 billion backlog and has been benefiting from the build-out of the cloud, will likely continue its strong momentum.
TE Connectivity is constantly on the lookout for strategic acquisitions, particularly in the sensor and harsh weather management segments. Over the past year, strategic acquisitions provided the company a leading position in solutions for the minimally-invasive medical market, fortified its portfolio of industrial connectors and bolstered its offering of sensors for the auto market.
In fact, its recent Creganna acquisition is performing better than expected and has positioned TE Connectivity as a leader in the high growth minimally invasive medical market. We expect Creganna to unlock growth opportunities in the transportation and industrial segments as well, going forward.
Furthermore, the company’s acquisition of Jaquet Technology Group in April has fortified its sensor position in the transportation market. Jaquet makes innovative speed sensors for the auto, rail and power markets. During the fiscal fourth quarter, TE Connectivity also completed the acquisition of Intercontec Group — a leading maker of high-quality industrial metric circular connectors.
TE Connectivity has also realigned its business to enhance its focus on the connectivity and sensor markets. The company had earlier sold its BNS business to CommScope (COMM - Free Report) , in a strategic step to streamline its business.
Thus, TE Connectivity has several growth drivers at present and is expanding its footprint and boosting its market share via acquisitions.
However, we believe that the company’s prospects, though solid in the long term, will be somewhat restrained in the immediate future by macro headwinds, like softness in the oil & gas end-market, currency volatility and weak industrial demand.
Sluggishness in the oil and gas markets and its derivative impact on other industrial markets have been strong headwinds for TE Connectivity. In fact, during the last reported quarter, TE Connectivity’s Oil and Gas operations experienced a 27% decline in sales due to the persistently weak end-market conditions.These factors can severely undermine the company’s growth prospects, going forward.
TE Connectivity currently carries a Zacks Rank #3 (Hold).
Ballard Power Systems registered a remarkable positive average surprise of 12.5% over the four trailing quarters, driven by two strong beats.
Stoneridge has a robust earnings beat history, having surpassed estimates each time in the trailing four quarters, for an average positive earnings surprise of 18.2%.
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TE Connectivity: Harsh Environment, SubCom to Drive Growth
On Dec 6, 2016, we issued an updated research report on TE Connectivity Ltd. (TEL - Free Report) . A market leader in the connectivity and sensor business, TE Connectivity boasts a comprehensive technology and product portfolio that helps it withstand economic distress and cyclical risks.
Over the past three months, TE Connectivity shares recorded an average return of 9.7%, outperforming the Zacks categorized Electronics industry average, which inched up 1.6%. Encouragingly, the company has a striking earnings surprise history, with an average surprise of 5.6% in the trailing four quarters, beating estimates all through.
In its recently reported fourth-quarter fiscal 2016 results, TE Connectivity’s earnings surpassed the Zacks Consensus Estimate by 6.7% and surged a whopping 41% from the prior-year tally. The impressive earnings were driven by robust growth in harsh environment and SubCom businesses. The company’s continued productivity improvements also reflected in the quarter’s earnings.
In the coming quarters, TE Connectivity expects its harsh-environment application business to perform well, mainly supported by secular trends like increased safety features, autonomous driving systems, higher emission standards and infotainment. Further, its SubCom business, which has a $1 billion backlog and has been benefiting from the build-out of the cloud, will likely continue its strong momentum.
TE Connectivity is constantly on the lookout for strategic acquisitions, particularly in the sensor and harsh weather management segments. Over the past year, strategic acquisitions provided the company a leading position in solutions for the minimally-invasive medical market, fortified its portfolio of industrial connectors and bolstered its offering of sensors for the auto market.
In fact, its recent Creganna acquisition is performing better than expected and has positioned TE Connectivity as a leader in the high growth minimally invasive medical market. We expect Creganna to unlock growth opportunities in the transportation and industrial segments as well, going forward.
Furthermore, the company’s acquisition of Jaquet Technology Group in April has fortified its sensor position in the transportation market. Jaquet makes innovative speed sensors for the auto, rail and power markets. During the fiscal fourth quarter, TE Connectivity also completed the acquisition of Intercontec Group — a leading maker of high-quality industrial metric circular connectors.
TE Connectivity has also realigned its business to enhance its focus on the connectivity and sensor markets. The company had earlier sold its BNS business to CommScope (COMM - Free Report) , in a strategic step to streamline its business.
Thus, TE Connectivity has several growth drivers at present and is expanding its footprint and boosting its market share via acquisitions.
However, we believe that the company’s prospects, though solid in the long term, will be somewhat restrained in the immediate future by macro headwinds, like softness in the oil & gas end-market, currency volatility and weak industrial demand.
Sluggishness in the oil and gas markets and its derivative impact on other industrial markets have been strong headwinds for TE Connectivity. In fact, during the last reported quarter, TE Connectivity’s Oil and Gas operations experienced a 27% decline in sales due to the persistently weak end-market conditions.These factors can severely undermine the company’s growth prospects, going forward.
TE Connectivity currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the same space includeBallard Power Systems Inc. (BLDP - Free Report) and Stoneridge, Inc. (SRI - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Ballard Power Systems registered a remarkable positive average surprise of 12.5% over the four trailing quarters, driven by two strong beats.
Stoneridge has a robust earnings beat history, having surpassed estimates each time in the trailing four quarters, for an average positive earnings surprise of 18.2%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>