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Morningstar | Narrow-moat Amphenol is primed to continue upward trend with rising connectivity.

Amphenol is a leading supplier of connectors and sensors products, designing thousands of products for industrial, automotive, networking, and consumer electronics markets. We believe the secular trends driving increased connectivity, in addition to improving efficiency standards, will give narrow-moat Amphenol steady growth and profitability over the next decade. In particular, we believe these trends will provide opportunities for significant content gains in automotive, commercial transportation, and aerospace and defense markets which will help maintain the firm’s historically strong growth. We also believe the proliferation of Internet of Things, and the increasing data demands of those products, will keep sales for components within mobile devices and broadband communications sectors ticking. Finally, we believe that Amphenol’s customers will continue to face significant switching costs if they attempt to change out the firm’s sensor or connector products for a competitor. Like other component companies, Amphenol’s near-term growth is a function of increased content in the global automotive market, in our view. While organic sales should keep up with their respective markets, we expect content wins in automotive and commercial transport markets, and strategic acquisitions will keep topline growth strong. The dynamic of increasing content per vehicle or unit also potentially raises switching costs as well as insulates revenue and profits from the worst of the industrial market’s cyclical downturns. Amphenol benefits from a number of trends: electrification, autonomous driving, industrial robotics, and data growth. While the trend toward electrification and autonomous vehicles should open up long-term opportunities for Amphenol to produce integrated content for a variety of applications, they have already seen the benefits of increased connectivity demands. Despite significant competition in Amphenol’s end markets, the content growth story and the firm’s switching costs should result in high-single-digit revenue growth and increasing profitability, with returns on invested capital exceeding cost of capital for the next decade.