Which EV supplier stock is a better buy?
TE Connectivity Ltd. (PHONE) and Amphenol Corporation (HPA) are two of the world’s leading electric vehicle providers. Schaffhausen, Switzerland TEL manufactures and sells technical electronic components, connectivity and sensor solutions primarily through direct sales to third-party manufacturers and distributors. In comparison, APH, which is based in Wallingford, Connecticut, designs, manufactures and markets electrical, electronic and fiber optic connectors, interconnect systems and coaxial and flat cables. Both companies serve the automotive, appliance, aerospace, defense, telecommunications, computing and consumer electronics industries.
Despite the global shortage of semiconductor chips and supply chain issues, a low interest rate environment and supportive government policies helped the electric vehicle industry grow last year. EV vendors have benefited significantly from increased demand for EV batteries, battery coolants, inverters and sensors from major EV manufacturers. The global electric vehicle market is expected to grow at a pace 22.6% CAGR and reach $802.81 billion by 2027. Thus, TEL and APH stand to benefit.
While APH stock has gained 10% in price over the past three months, TEL has jumped 12.9%. TEL is also a clear winner with gains of 22.9% compared to APH’s 20.7% returns in terms of past year performance. But which of these actions is a better choice now? Let’s find out.
Click here to view our EV Industry Report for 2022
Recent financial results
TEL’s net sales for its fourth quarter of fiscal 2021, ended September 24, 2021, increased 17.1% year-on-year to $3.82 billion. The company’s gross profit was $1.26 billion, indicating a 30.3% increase over the prior year period. Its non-GAAP operating profit was $706 million, up 49.3% from the year-ago period. TEL’s non-GAAP net income was $560 million for the quarter, representing a 45.5% year-over-year improvement. And its non-GAAP EPS rose 45.7% year-over-year to $1.69. The company had $1.20 billion in cash and cash equivalents as of September 24, 2021.
For its third quarter of fiscal 2021, ended September 30, 2021, AMP’s net sales increased 21.3% year-over-year to $2.82 billion. The company’s gross profit was $889.90 million, up 21.1% from the same period last year. Its adjusted operating profit was $571.20 million for the quarter, representing an increase of 20.1% over the prior year period. While its adjusted net income rose 21% year over year to $406.50 million, its adjusted EPS rose 18.2% to $0.65. The company had $1.27 billion in cash and cash equivalents as of September 30, 2021.
Past and expected financial performance
TEL’s revenue and EBITDA have grown at a CAGR of 2.2% and 3.3%, respectively, over the past three years. The company’s total assets have grown at a CAGR of 1.7% over the past three years.
TEL’s EPS is expected to increase 6.8% year-on-year in its 2022 fiscal year, ending September 30, 2021, and 13.7% in 2023. The company’s revenue is expected to increase 5.2% in year-over-year in fiscal 2022 and 7.7% in 2023. And analysts expect the company’s EPS to grow at a rate of 10.4% annually over the next five years.
By comparison, APH’s revenue and EBITDA grew at CAGRs of 9.1% and 8.9%, respectively, over the past three years. The company’s total assets have grown at a CAGR of 15.3% over the past three years.
Analysts expect APH’s EPS to rise 29.4% year-over-year in its 2021 fiscal year, which ended December 31, 2021, and 10.3% in 2022. revenue is expected to grow 23.3% year-over-year in its fiscal year 2021 and 6.3% in 2022. The company’s EPS is expected to grow at a rate of 14.4% annually over the next five years.
In non-GAAP P/E terms, APH is currently trading at 33.87x, 50.1% higher than TEL’s 22.56x. And in terms of EV/Forward Sales, TEL’s 3.58x compares to APH’s 5.05x.
TEL’s revenue over the past 12 months is almost 1.5 times that of APH. TEL is also more profitable, with 32.8% Gross margin against 31.4% for APH.
Additionally, TEL’s free cash flow of 11.6% compares favorably to APH’s negative value.
Although TEL has an overall rating of B, which translates to Buy in our own POWR Rankings system, APH has an overall rating of C, which is equivalent to a neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
TEL has a B rating for value, which is in line with its lower-than-industry valuation ratios. TEL has a futures price/pound of 4.50x, 20.5% below the industry average of 5.67x. APH’s D rating for value signifies its overvaluation. APH’s 8.25x futures price/pound is 45.6% above the industry average of 5.67x. TEL has a B rating for Momentum, which is consistent with its impressive price gains over the past year. In contrast, APH’s C rating for Momentum reflects its mixed price performance over the past year.
Among the 40 B-rated securities Industrial – Manufacturing industry, TEL is ranked #6. APH is ranked No. 29 out of 45 stocks in the C rating Technology – Electronics industry.
Beyond what we stated above, our POWR rating system also rated TEL and APH for growth, quality, stability, and sentiment. Get all TEL odds here. As well, Click here to see additional POWR ratings for APH.
Strong demand for raw materials from electric vehicle manufacturers should benefit both TEL and APH. However, its relatively lower valuation and higher profitability make TEL a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the industrial – manufacturing sector, and here for those in the Technology – Electronics industry.
Click here to view our EV Industry Report for 2022
Shares of TEL were trading at $159.37 per share on Friday afternoon, down $0.25 (-0.16%). Year-to-date, TEL is down -1.22%, compared to a -2.65% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. Following…