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TE Connectivity (TEL) Q1 Earnings: Stock Poised to Beat

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We expect Waters TE Connectivity Ltd. (TEL - Free Report) to beat earnings expectations when it reports first-quarter fiscal 2017 results before the opening bell on Jan 25.

The company has an excellent earnings surprise history, with an average positive surprise of 5.6% for the trailing four quarters. TE Connectivity scored its fourth consecutive earnings beat, during the last reported quarter, as it beat estimates by 6.7%.

We expect the company to post an earnings beat in the soon-to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model shows that TE Connectivity is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.00%. This is a very meaningful and leading indicator of a likely earnings surprise.

Zacks Rank: TE Connectivity carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating estimates. On the other hand, Sell-rated stocks (#4 and 5) should not be considered going into an earnings announcement.

The combination of TE Connectivity’s Zacks Rank #2 and ESP of +1.00% makes us confident of an earnings beat in the upcoming report.

Growth Factors for the Quarter

TE Connectivity, a market leader in the connectivity and sensor business, is armed with a comprehensive portfolio that supplements its strength. About 80% of the company’s revenues are driven by harsh environment applications. For the past five years, the company’s harsh business applications have been experiencing mid-single digit growth, bolstering revenues. We believe that stellar traction of harsh environment applications will continue to support the top line and margin growth for first-quarter 2017.

TE Connectivity Ltd. Price and EPS Surprise

 

TE Connectivity Ltd. Price and EPS Surprise | TE Connectivity Ltd. Quote

In addition, all three segments of the company, namely Transportation, Industrial and Communications businesses are expected to act as key profit churners for the quarter to be reported. In addition, robust expansion in the heavy truck market, especially in Asia, is likely to stoke the growth of Commercial Transportation business. Further, robust growth of Commercial Aerospace and Defense business makes us believe that Industrial segment is poised to register a decent performance.

Further, the communications segment has bright prospects and is estimated to grow in low-single digits, by appliances and SubCom business line. Especially, SubCom is anticipated to remain as one of the strongest growth drivers, with its $1-billion backlog, benefiting from the build-out of the cloud.

Over the past year, strategic acquisitions have given TE a leading position in solutions for the minimally-invasive medical market, fortified its portfolio of industrial connectors and bolstered the company’s offering of sensors for the auto market. We believe that the previously completed acquisitions, including AdvancedCath, Measurement Specialties and Creganna will propel the company’s inorganic revenues substantially.

TE Connectivity has charted an impressive growth of 12.5% for the past six months, outpacing the Zacks categorized Electronics-Miscellaneous Components industry average of 6.3%.

Other Stocks That Warrant a Look

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Applied Optoelectronics, Inc. (AAOI - Free Report) has an Earnings ESP of +15.9% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. (AMAT - Free Report) has an Earnings ESP of +6.1% and a Zacks Rank #1.

Microsoft Corporation (MSFT - Free Report) has an Earnings ESP of +1.3% and a Zacks Rank #2.

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