This auto supplier has a more than 30% market share in a rapidly-expanding market.
Sensata Technologies (ST)
from Top Stock Insights
Sensata (ST) is one of the world’s leading designers of sensors and controls for automotive, residential, commercial and industrial markets.
The company’s recovery out of the 2008-2009 recession was swift—revenues popped 36% in 2010 and 18.6% in 2011. Growth has averaged a more moderate 4% over the past two years. But I expect Sensata’s growth to accelerate over the next two years and be in the 8% to 12% range, in part due to acquisitions. 2014 is off to a great start with revenues rising by 17% in Q1 (as compared to the year ago quarter).
Demand for sensors and controls is being driven by ever increasing energy and fuel efficiency and safety standards, not to mention a rising level of manufacturing complexity in the various markets that Sensata serves.
The company’s sensors make up 75% of total revenue (primarily auto-related) while controls make up the remaining 25% (primarily home appliances and industrial equipment, including heating, ventilation and air conditioning systems).
Its sensors and controls are also used in aerospace, military and back-up power applications - typically to protect motors and circuit breakers, control temperatures and prevent fire and other damage while equipment is in use and under heavy load.
Its top 10 customers in both the sensor and controls groups have all been with the company for an average of 26 years, and include major manufacturers Chrysler, Ford, General Motors, Honda, VW, LG Group, Emerson Electric, Samsung Electronics and Whirlpool.
Operating margin was 18.4% in 2013 versus 16.1% in 2011, and net income has expanded to 9.5% versus 0.4%. This has moved the bottom line considerably. Diluted EPS in 2013 was $1.05 versus just $0.04 in 2011.
Sensata has been on a two-year share buyback spree that has been helping reduce shares outstanding. Since October 2012 it has re-purchased around 4.7 million shares. This isn’t a massive program, but it is a small factor contributing to a boost in EPS.
I expect Sensata to grow revenue by around 10% annually over the next two years and to grow EPS by between 10% and 20%. Revenues and adjusted EPS in Q1 were up by 17%, indicating that the global automotive markets—where ST generates the bulk of its business—are gaining momentum and that these estimates are reasonable at this stage of the game.
With shares trading with a forward PE of 15.8 (assuming adjusted EPS of $2.90 in 2015) the stock is attractively valued today.
Tyler Laundon and Ian Wyatt, Top Stock Insights, www.topstockinsights.com, 866-447-8625, June 20, 2014