This automotive supplier beat analysts’ EPS estimates by seven cents last quarter. And it now has big opportunities with the growth of electric vehicles.
Amphenol Corporation (APH)
From Pivotal Point
Every major carmaker has plans for EVs:
• Volkswagen, the largest carmaker by sales, is spending $12.5 billion getting its plants ready to produce 15 million electric cars by 2023.
• Volvo is electrifying the entire fleet.
• Ford (F) announced in January the company would produce an all-electric F-150
• While this is not great news for Tesla, this sea change is an opportunity for investors.
It means carmakers are rethinking their systems and processes. Which, in turn, creates a new category of components winners—I’m talking about companies with strong competitive advantages and plenty of profit runway.
Amphenol Corp. (APH) is a perfect example of this new kind of opportunity. Connecticut-based Amphenol makes electrical wiring interconnection systems, sensors, antennas, infotainment, light assemblies, switches and power management products for the automotive sector.
In Q4, Amphenol completed its acquisition of SSI Controls Technologies. This Wisconsin company provides high-tech sensor systems, including ultrasonic level systems, to the automotive and industrial sectors. Admittedly, SSI has a dull business. That’s just fine because it’s surprisingly lucrative. And it’s destined to improve as more electric cars use its sensors and interconnection systems.
Amphenol has become a leading player in the automotive, military, commercial aerospace, mobile, broadband and data communications markets it serves.
Fourth-quarter sales reached a record $2.26 billion, rising 14% quarter-over-quarter. New bookings surged to $2.2 billion, and free cash flow was $378 million. For the full year, sales jumped 17% to $8.2 billion.
Amphenol shares trade at about 24x forward earnings, and 3.6x sales. The market capitalization is $28.2 billion, following a 16.6% rally so far in 2019.
Given the bright prospects, investors can safely buy Amphenol shares into market weakness.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, March 6, 2019