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Will TE Connectivity (TEL) Prove to be a Suitable Value Pick?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put TE Connectivity Ltd. (TEL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, TE Connectivity has a trailing twelve months PE ratio of 16.66. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.56.
If we focus on the long-term trend of the stock, the current level puts TE Connectivity’s current PE at about its median (which stands at 16.42) over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Electronics - Miscellaneous Components industry’s trailing twelve months PE ratio, which stands at 21.33. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, TE Connectivity has a P/S ratio of about 2.20. This is higher than the Zacks categorized Electronics - Miscellaneous Components industry average, which comes in at 1.89 right now.
TEL is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, TE Connectivity’s P/CF ratio of 10.40 is lower than the Zacks classified Electronics - Miscellaneous Components industry average of 11.4, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, TE Connectivity currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes TE Connectivity an apt choice for value investors, and all of the listed metrics make it pretty clear too.
What About the Stock Overall?
Though TE Connectivity might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘F’ and a Momentum score of ‘C’. This gives TEL a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been trending upwards lately. The current quarter consensus estimate has increased nearly 1% over the past month, while the full year estimate has inched up 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
TE Connectivity is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, despite a strong Zacks Rank, the sluggish industry rank (among the Top 20%) somewhat dims the sparkle. The sluggish industrial markets and derivative impact of lower oil prices are posing as major headwinds, thwarting growth.
Nevertheless, TE Connectivity has a striking earnings surprise history with an average positive surprise of 8.9% over the trailing four quarters, beating estimates each time. These impressive earnings beat were driven by continued progress on strategic priorities, solid execution and robust top-line growth.
Going forward, the company expects transportation business to grow in mid-single digits organically, fuelled by growth in global auto production and impressive heavy truck business in key end markets. Also, other two segments, namely, Communications and Industrial are expected to stoke growth. Additionally, TE Connectivity’s solid financial health adds to its strength.
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Will TE Connectivity (TEL) Prove to be a Suitable Value Pick?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put TE Connectivity Ltd. (TEL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, TE Connectivity has a trailing twelve months PE ratio of 16.66. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.56.
If we focus on the long-term trend of the stock, the current level puts TE Connectivity’s current PE at about its median (which stands at 16.42) over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Electronics - Miscellaneous Components industry’s trailing twelve months PE ratio, which stands at 21.33. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, TE Connectivity has a P/S ratio of about 2.20. This is higher than the Zacks categorized Electronics - Miscellaneous Components industry average, which comes in at 1.89 right now.
TEL is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, TE Connectivity’s P/CF ratio of 10.40 is lower than the Zacks classified Electronics - Miscellaneous Components industry average of 11.4, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, TE Connectivity currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes TE Connectivity an apt choice for value investors, and all of the listed metrics make it pretty clear too.
What About the Stock Overall?
Though TE Connectivity might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘F’ and a Momentum score of ‘C’. This gives TEL a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been trending upwards lately. The current quarter consensus estimate has increased nearly 1% over the past month, while the full year estimate has inched up 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
TE Connectivity Ltd. Price and Consensus
TE Connectivity Ltd. Price and Consensus | TE Connectivity Ltd. Quote
This somewhat positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
TE Connectivity is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, despite a strong Zacks Rank, the sluggish industry rank (among the Top 20%) somewhat dims the sparkle. The sluggish industrial markets and derivative impact of lower oil prices are posing as major headwinds, thwarting growth.
Nevertheless, TE Connectivity has a striking earnings surprise history with an average positive surprise of 8.9% over the trailing four quarters, beating estimates each time. These impressive earnings beat were driven by continued progress on strategic priorities, solid execution and robust top-line growth.
Going forward, the company expects transportation business to grow in mid-single digits organically, fuelled by growth in global auto production and impressive heavy truck business in key end markets. Also, other two segments, namely, Communications and Industrial are expected to stoke growth. Additionally, TE Connectivity’s solid financial health adds to its strength.
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>