CTS Corporation (CTS) manufactures and sells sensors, actuators, and connectivity components in North America, Europe, and Asia. The company offers sensors and actuators for passenger or commercial vehicles, connectivity components for telecommunications infrastructure, information technology, and other high-speed applications.
The stock has gained 14.9% over the past year and 20.4% over the past six months to close its last trading session at $38.49. The company’s revenue has risen at a CAGR of 6.1% over the past five years. In addition, its EBITDA and levered FCF have grown at a CAGR of 6.3% and 50.7% over the past three years, respectively.
CTS reported impressive second quarter 2022 results driven by the execution of its diversification strategy. The company’s robust portfolio has enabled it to secure secular tailwinds in its expansion into premium non-transportation end markets.
Kieran O’Sullivan, CEO of CTS, said, “Our recent acquisition of Ferroperm further advances our strategic priorities. Despite a challenging macroeconomic environment, we believe that our operational strength, combined with a strong balance sheet and solid cash generation, position us for long-term sustainable growth.”
Here’s what could shape CTS’ performance in the near term:
Last month, CTS completed the previously announced acquisition of Ferroperm Piezoceramics from Meggitt PLC for 525 million Danish Krone in cash, subject to usual net debt and working capital adjustments and other terms and conditions of the Definitive Share Purchase Agreement.
CTS’ net sales increased 11.9% year-over-year to $144.98 million for the second quarter ending June 30, 2022. Its operating earnings grew 10.2% from the year-ago value to $22.69 million, while its net earnings came in at $12.60 million, representing a 1339.8% increase year-over-year. The company’s EPS rose 1200% from the year-ago value to $0.39.
CTS’ trailing-12-month EBITDA margin of 19.9% is 53.9% higher than the industry average of 12.95%. In addition, its trailing-12-month levered FCF margin of 9.85% is 7.7% higher than the 9.14% industry average. Also, its trailing-12-month ROC of 9.05% is 116.9% higher than the industry average of 4.17%.
The company’s 14.92X forward P/E is 14.8% lower than its industry average of 17.51x. Also, its 2.11x EV/Sales is 23.1% lower than its industry average of 2.74x. It’s 2.08x forward Price/Sales is 24% lower than its industry average of 2.73x.
Impressive Growth Prospects
Street expects CTS’ revenues to rise 27.6% in the current quarter, 15.6% in the current year, and 7.4% next year. The company’s EPS is expected to rise 28.3% in the current quarter, 28% in the current year, and 11.3% next year.
In addition, its EPS is expected to rise at an 11% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped Street’s EPS estimates in all of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
The only Wall Street analyst that rated CTS rated it Buy. The 12-month median price target of $43.00 indicates an 11.7% potential upside.
POWR Ratings Reflect Solid Prospects
CTS has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CTS is rated an A grade for Growth and Quality and a B for Sentiment. CTS’ impressive financial prospects and growth attributes are in sync with its Growth grade.
Its higher profitability is consistent with its Quality grade. In addition, the expected revenue and earnings growth and the stock’s potential upside based on the average price target justify the Sentiment grade.
Among the 47 stocks in the B-rated Technology – Electronics industry, CTS is ranked #2.
Beyond what I stated above, we have graded CTS for Value, Stability, and Momentum. Click here to view all CTS ratings.
CTS has shown remarkable financial performance in the second quarter and is expected to witness solid growth supported by the recent acquisition of Ferroperm. Given the company’s robust profitability, impressive growth attributes, and lower valuation, we think it could be a solid addition to one’s portfolio.
How Does CTS Corporation (CTS) Stack Up Against its Peers?
CTS has an overall POWR Rating of A, equating to a Strong Buy. Check out this other stock within the Technology – Electronics industry with an A (Strong Buy) rating: Wayside Technology Group, Inc. (WSTG).
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CTS shares were trading at $39.45 per share on Thursday afternoon, up $0.96 (+2.49%). Year-to-date, CTS has gained 7.67%, versus a -13.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...
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