On Tuesday, Baird raised the price target for TE Connectivity (NYSE:TEL) shares to $165 from $158, while maintaining an Outperform rating.
The firm highlighted several growth drivers that could lead to a higher valuation multiple for the company. These include an expected increase in automotive outgrowth in the second half of 2024, a boost in Communications Solutions margins due to ramping artificial intelligence sales, and potential margin improvements from Industrial stabilization and recovery looking into fiscal year 2025.
The analyst noted that TE Connectivity's Industrial Equipment margins are the highest within the Industrial Services sector. This observation comes as the company's valuation has begun to expand in absolute terms, despite trading at a decade low against its peer Amphenol (NYSE:APH) on an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) basis.
Comparing TE Connectivity to Amphenol, which has experienced significant year-to-date strength, the analyst suggested that TE Connectivity's stock multiple could see further expansion. This is based on the assumption that the valuation gap between the two companies will start to close.
The price target of $165 is derived from a 12.5 times multiple on the estimated EV to calendar year 2025 EBITDA. The analyst expressed confidence in TE Connectivity's potential for multiple expansion, given the direction of current trends that are somewhat similar to those benefiting Amphenol.
TE Connectivity's shares are anticipated to benefit from these factors, as the firm's analysis indicates a positive outlook for the company's financial performance and market valuation in the coming periods.
InvestingPro Insights
TE Connectivity (NYSE:TEL) has shown a commendable track record of raising its dividend for 14 consecutive years, which speaks to its financial stability and commitment to shareholder returns. The company's stock is also trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 13.8 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 12.91. These figures suggest that the stock may be undervalued, especially considering its role as a prominent player in the Electronic Equipment, Instruments & Components industry.
Additionally, TE Connectivity has maintained dividend payments for 18 consecutive years, underlining the company's consistent performance and reliability as an investment. With a moderate level of debt and cash flows that can sufficiently cover interest payments, TEL appears to be in a healthy financial position. The stock is also trading near its 52-week high, with a price at 99.74% of the peak, reflecting investor confidence in the company. For those seeking further insights and tips, there are 11 additional InvestingPro Tips available for TE Connectivity, which can be accessed on the InvestingPro platform. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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