EUR 850.00 For Business Accounts Only

Morningstar | APH Updated Star Rating from 26 Jul 2018

Amphenol’s second-quarter results exceeded the firm’s prior guidance, delivering record revenue and adjusted earnings. Management also increased its full-year revenue guidance. Military sales continued to outpace the firm’s expectations amid the market’s steady adoption of electronic content, while mobile device revenue was buoyed by strong performance in smartphones and accessories. Despite the strong quarterly performance and improved outlook for the year, we are maintaining our view of the narrow-moat firm’s prospects for long-term growth and thus will keep our fair value estimate of $83 per share. The shares traded higher on the July 25 financial report and remain at a slight premium to our fair value estimate.

Second-quarter sales rose 19% versus the prior-year period and 4% sequentially to nearly $2 billion. Revenue in the interconnect segment grew 20% year over year while the smaller cable segment, accounting for less than 6% of total sales, grew 4%. Adjusted operating margin during the quarter set a record at 20.6%, despite increased commodity costs negatively affecting profitability in the cable segment. Amphenol’s end-market exposure remains highly diversified, with no single market accounting for more than 21% of sales during the quarter. The firm counted double-digit sales growth across several end markets while demand remains strong coming into the third quarter, with a total book/bill ratio of 1.02. The outlook for mobile devices in particular is very strong with management now forecasting annual sales growth in the mid- to high teens versus the prior expectation of mid- to high-single-digit growth. Guidance for the third quarter is revenue of $1.98 billion-$2.20 billion with adjusted earnings per share of $0.91-$0.93. At the midpoint of guidance, earnings would increase 2% sequentially and nearly 5% year over year.

Amphenol has relied heavily on M&A to increase scale and capabilities, and the second quarter continued that trend as the firm announced two new acquisitions, All Sensors and Ardent Concepts. The acquisitions are expected to add $25 million in annual revenue and extend the firm’s reach in pressure sensors and interconnect products. We have a generally positive view of these acquisitions as they continue Amphenol's strategy of finding complementary technologies that will widen the firm’s moat and increase the likelihood of benefiting from the secular trends surrounding electrification and automation.