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TE Connectivity (TEL) Down 6.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for TE Connectivity Ltd. (TEL - Free Report) . Shares have lost about 6.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TE Connectivity Tops Q3 Earnings, Raises View Again

TE Connectivity scored its seventh consecutive earnings beat as it reported third-quarter fiscal 2017 adjusted earnings of $1.24 per share, beating the Zacks Consensus Estimate of $1.17 by 6%.

The bottom line fared phenomenally in year-over-year comparison, jumping 14.8% from the prior-year tally of $1.08. The figure also steered past the projected range of $1.14–$1.18.

The impressive earnings were driven by continued progress on strategic priorities, solid execution and impressive top-line growth. Encouraged by the successful execution and all-round growth, the company raised its earnings and revenue guidance once again.

On GAAP basis, the company’s earnings from continuing operations came in at $1.21 per share, down significantly from $2.19 reported in the year-ago quarter.

Inside the Headlines

Net sales in the quarter grew 7.9% year over year at $3,367 million and also topped the Zacks Consensus Estimate of $3,251 million. Solid performance across all three segments drove the quarterly top-line growth. Excellent traction in the company’s harsh environment businesses, which has been a staple profit churner over the past quarters, contributed significantly to the top line.

Segmental Performance

Transportation Solutions revenues came in at $1,765 million in the quarter, up 6.8% on a year-over-year basis. Orders in the transportation segment came in at $1,887 million, up 14% on a year-over-year basis. Organic growth in automotive, commercial transportation,and sensors across all regions boosted the top line.

Industrial Solutions revenues had another strong quarter, rising 6.6% year over year to $905 million. Orders in this quarter rose 9% to $951 million. The impressive growth was driven by strength in industrial equipment, factory automation & medical applications. Solid energy business in EMEA and Asia, and robust Industrial Equipment organic growth contributed to the segment revenues. Also, the previously completed Creganna and Intercontec acquisitions added significantly to growth.

Communications Solutions revenues rose 12.1% year over year to $697 million. Orders were up 10% year over year to $432 million. Growth of this segment was bolstered by strength in Asia in both Data and Devices, and double-digit growth in appliances.

The company’s adjusted operating margin for the quarter expanded 50 basis points from the year-ago quarter to 16.6%.

Liquidity & Cash Flow

TE Connectivity exited the quarter with cash and cash equivalents of $755 million, higher than $647 million a year back.

The company generated free cash flow of $408 million in the quarter, down from $589 million in the prior-year quarter.

Share Repurchase Program/Dividend

During the reported quarter, the company returned $324 million to shareholders through dividends and share repurchases.

Acquisition

The company enhanced its harsh environment portfolio with bolt-on acquisitions in the Automotive and Medical business.

During the fiscal third quarter, the company inked a definitive agreement to acquire Hirschmann Car Communication, which focuses on vehicle connectivity technology used in antenna and infotainment systems.

TE Connectivity also acquired MicroGroup, which makes specialized shafts for medical applications. These acquisitions will unlock expansion opportunities, and advance content growth in key applications for the automotive and medical markets.

Guidance

TE Connectivity projects fourth-quarter fiscal 2017 adjusted earnings per share in the range of $1.14–$1.16. It expects revenues to lie in the range of $3.2–$3.3 billion (which reflects growth of 5% year over year at mid-point).

Concurrent with the fiscal third-quarter earnings release, the company once again raised its fiscal 2017 earnings and revenue guidance. It now expects net sales in the range of $12.85–$12.95 billion compared to the earlier range of $12.60–$12.80 billion. The range reflects 8% year-over-year growth at mid-point. Adjusted earnings per share are projected in the band of $4.72–$4.74, as opposed to the earlier guidance of $4.58–$4.66. It reflects 20% year-over-year growth at mid-point.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

TE Connectivity Ltd. Price and Consensus

 

VGM Scores

At this time, the stock has an average Growth Score of C, while its Momentum is doing a bit better with a B. Charting the exact same path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and momentum investors than those looking for growth.

Outlook

The Zacks Consensus Estimate for the current quarter moved up over the last 30 days. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.




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