TE Connectivity Ltd. (TEL) and Amphenol Corporation (APH) are two prominent electric vehicle supplier companies globally. Schaffhausen, Switzerland-based TEL manufactures and sells engineered electronic components, connectivity, and sensor solutions primarily through direct sales to manufacturers and third-party distributors. In comparison, APH, which is based in Wallingford, Conn., designs, manufactures, and markets electrical, electronic and fiber optic connectors, interconnect systems, and coaxial and flat-ribbon cable. Both companies serve the automotive, appliance, aerospace, defense, telecommunications, computer, and consumer electronics industries.
Despite the global semiconductor chip shortage and supply chain issues, a low-interest-rate environment and favorable government policies helped the EV industry grow last year. EV suppliers benefited significantly from heightened demand for EV batteries, battery coolants, power inverters, and sensors from leading EV manufacturers. The global electric vehicle market is expected to grow at a 22.6% CAGR and reach $802.81 billion by 2027. So, both TEL and APH should benefit.
While APH’s stock has gained 10% in price over the past three months, TEL has surged 12.9%. TEL is also a clear winner with 22.9% gains versus APH’s 20.7% returns in terms of the past year’s performance. But which of these stocks is a better pick now? Let us find out.
Recent Financial Results
TEL’s net sales for its fiscal year 2021 fourth quarter, ended Sept. 24, 2021, increased 17.1% year-over-year to $3.82 billion. The company’s gross profit came in at $1.26 billion, indicating a 30.3% rise from its year-ago period. Its non-GAAP operating income was $706 million, up 49.3% from the prior-year period. TEL’s non-GAAP net income stood at $560 million for the quarter, representing a 45.5% year-over-year improvement. And its non-GAAP EPS increased 45.7% year-over-year to $1.69. The company had $1.20 billion in cash and equivalents as of September 24, 2021.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, AMP’s net sales increased 21.3% year-over-year to $2.82 billion. The company’s gross profit came in at $889.90 million, up 21.1% from the year-ago period. Its adjusted operating income was $571.20 million for the quarter, representing a 20.1% rise from the prior-year period. While its adjusted net income increased 21% year-over-year to $406.50 million, its adjusted EPS increased 18.2% to $0.65. The company had $1.27 billion in cash and cash equivalents as of Sept. 30, 2021.
Past and Expected Financial Performance
TEL’s revenues and EBITDA have increased at a 2.2% and 3.3% CAGR, respectively, over the past three years. The company’s total assets have grown at a 1.7% CAGR over the past three years.
TEL’s EPS is expected to rise 6.8% year-over-year in its fiscal year 2022, ending Sept. 30, 2021, and 13.7% in 2023. The company’s revenue is expected to increase 5.2% year-over-year in fiscal 2022 and 7.7% in 2023. And analysts expect the company’s EPS to grow at a 10.4% rate per annum over the next five years.
In comparison, APH’s revenue and EBITDA have increased at CAGRs of 9.1% and 8.9%, respectively, over the past three years. The company’s total assets have increased at a 15.3% CAGR over the past three years.
Analysts expect APH’s EPS to increase 29.4% year-over-year in its fiscal year 2021, ended Dec. 31, 2021, and 10.3% in 2022. Its revenue is expected to grow 23.3% year-over-year in its fiscal 2021 and 6.3% in 2022. The company’s EPS is expected to grow at a 14.4% rate per annum over the next five years.
In terms of non-GAAP P/E, APH is currently trading at 33.87x, which is 50.1% higher than TEL’s 22.56x. And in terms of forward EV/Sales, TEL’s 3.58x compares with APH’s 5.05x.
TEL’s trailing-12-month revenue is almost 1.5 times APH’s. TEL is also more profitable, with a 32.8% gross profit margin versus APH’s 31.4%.
Furthermore, TEL’s 11.6% levered free cash flow compares favorably with APH’s negative value.
While TEL has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, APH has an overall C grade, which equates to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
TEL has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. TEL has a 4.50x forward Price/Book, which is 20.5% lower than the 5.67x industry average. APH’s D grade for Value signifies its overvaluation. APH’s 8.25x forward Price/Book is 45.6% higher than the 5.67x industry average.TEL has a B grade for Momentum, which is consistent with its impressive price gains over the past year. In contrast, APH’s C grade for Momentum reflects its mixed price performance over the past year.
Beyond what we have stated above, our POWR Ratings system has also rated TEL and APH for Growth, Quality, Stability, and Sentiment. Get all TEL ratings here. Also, click here to see the additional POWR Ratings for APH.
The high demand for raw materials from EV manufacturers should benefit both TEL and APH. However, its relatively lower valuation and higher profitability we think make TEL a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Industrial – Manufacturing industry, and here for those in the Technology – Electronics industry.
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TEL shares were trading at $159.37 per share on Friday afternoon, down $0.25 (-0.16%). Year-to-date, TEL has declined -1.22%, versus a -2.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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