Based in Ballybrit, Ireland, TE Connectivity plc (TEL) is a leading global manufacturer and seller of connectivity and sensor solutions, operating through three segments: Transportation Solutions; Industrial Solutions; and Communications Solutions. In the last reported quarter, the company easily beat the analysts’ expectations for revenue and adjusted EPS.
The company maintained its sales growth with its wide product portfolio, continued innovations, and strong operations. It delivered strong margin expansion, fueled by accelerating momentum in artificial intelligence programs. TEL’s connectivity and sensor solutions contribute to the Internet of Things (IoT) market’s operations, further solidifying its future opportunities.
The Internet of Things (IoT) is continuously revolutionizing how data is exchanged and connected among systems and devices over the Internet. It provides a global infrastructure for the information society, empowering modernized services to connect and communication based on the prevailing mechanisms.
With these trends, the global Internet of Things (IoT) market is projected to reach around $4.06 trillion by 2032, exhibiting growth at a noteworthy CAGR of 24.3%. The market is driven by the rising application of generative AI within IoT devices, the adoption of blockchain technologies, smart city developments, and the growing demand for connectivity devices like sensors and smart meters.
TE Connectivity, being a leading provider of connectivity devices and solutions, stands to capitalize on the encouraging trends of the IoT industry.
Further, reflecting on its sound financial performance, the company provided a financial outlook for the first quarter of fiscal 2025. TEL expects net sales of approximately $3.9 billion. The company’s adjusted EPS is expected to be $1.88.
Also, the company’s stock performance shows its robust standing. Shares of TEL have gained 2% over the past year to close its last trading session at $143.89. Also, the stock soared 2.3% over the past nine months.
Let’s look at factors that could influence TEL’s performance in the upcoming months.
Solid Financials
For the fourth quarter that ended September 27, 2024, TEL’s net sales increased 0.8% year-over-year to $4.07 billion, of which its communication solutions revenue grew 24.6% from the year-ago value to $577 million. Its adjusted operating income rose 8% from the prior year's period to $755 million.
Furthermore, the company’s adjusted income from continuing operations amounted to $595 million, up 5.5% from the prior year’s quarter, while its adjusted EPS from continuing operations rose 9.6% year-over-year to $1.95.
Also, TEL’s total assets came in at $22.85 billion as of September 27, 2024, compared to $21.71 billion as of September 29, 2023.
Robust Historical Growth
TEL’s revenue grew at a CAGR of 2% over the past three years, while its EBITDA improved at a CAGR of 2.6%. The company’s EBIT increased at a CAGR of 2.7% over the same period, while TEL’s net income and EPS grew at respective CAGRs of 12.2% and 15.1% over the same time frame.
Further, the company’s tangible book value and levered free cash flow increased at CAGRs of 15.5% and 6.2% over the same timeframe, respectively.
Favorable Analyst Estimates
Analysts expect TEL’s revenue for the first quarter (ending December 2024) to come in at $3.91 billion, indicating an increase of 2.1% year-over-year. The consensus EPS estimate of $1.89 for the same period reflects a 2.6% year-over-year improvement. Further, the company has surpassed the consensus EPS estimate in all of the trailing four quarters, which is promising.
For the fiscal year (ending September 2025), the company’s revenue and EPS are anticipated to grow 4.2% and 7% year-over-year to $16.52 billion and $8.09, respectively. In addition, Street expects its revenue and EPS for the fiscal year 2026 to grow 6.8% and 11.4% from the prior year to $17.63 billion and $9.01, respectively.
High Profitability
TEL’s trailing-12-month EBIT margin of 18.53% is 241.8% higher than the 5.42% industry average. Its trailing-12-month net income margin of 20.15% is significantly higher than the industry average of 3.79%. Likewise, the stock’s trailing-12-month levered FCF margin of 13.05% is 15.5% higher than the industry average of 11.29%.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 26.72%, 10.95%, and 13.97% are higher than the 4.54%, 3.22%, and 2.18% industry averages, respectively.
Lower Valuation
In terms of forward non-GAAP P/E, TEL is currently trading at 17.78x, 28.9% lower than the industry average of 25.01x. Similarly, the stock’s forward EV/Sales and Price/Sales of 2.82x and 2.61x are considerably lower than the industry averages of 3.22x and 3.18x, respectively.
Additionally, the stock’s forward EV/EBITDA and Price/Book of 11.53x and 3.39x are 24.2% and 19.1% lower than the industry averages of 15.22x and 4.19x, respectively.
POWR Ratings Appear Promising
TEL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. TEL has a B grade for Value and Quality, consistent with its lower valuation and higher-than-industry profitability.
Also, the stock has a B grade for Sentiment, justified by the optimistic analysts’ estimates.
TEL is ranked #2 among the 35 stocks in the B-rated Industrial - Machinery industry.
Beyond what I have stated above, we have also given TEL grades for Momentum, Stability, and Growth. Get access to all the TEL ratings here.
Bottom Line
TEL reported solid financial results in the last quarter, with decent sales growth and an expanding margin. Further, the company’s long-term prospects appear promising, driven by its innovative offerings, expanding operations, and robust industry opportunities.
Given TEL’s solid financials, robust growth prospects, and lower valuation, investing in this stock seems prudent.
How Does TE Connectivity plc (TEL) Stack Up Against Its Peers?
Although TEL’s near-term outlook appears sound, having an overall rating of A, it may be worthwhile to explore its industry peers, who also exhibit strong POWR Ratings. So, consider these B (Buy) rated stocks from the B-rated Industrial - Machinery industry:
Core Molding Technologies Inc (CMT)
Johnson Electric Holdings Limited (JEHLY)
CompX International Inc. (CIX)
For exploring more A and B-rated industrial stocks, click here.
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TEL shares were trading at $144.28 per share on Friday afternoon, up $0.39 (+0.27%). Year-to-date, TEL has gained 4.46%, versus a 25.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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