TE Connectivity Earnings: Great Profits Don’t Lift Our Long-Term View

We maintain our $135 fair value estimate for shares of narrow-moat TE Connectivity after its fiscal first-quarter sales came in under our expectations, but profitability outperformed. Margins in the quarter were abnormally high, in our opinion, but we expect them to normalize through the rest of fiscal 2024. Still, we believe it will be a year of strong profit performance for TE. TE’s end markets continued to show mixed results, with transportation sales still buoying the overall business against weaker demand in industrial equipment and communications. We see shares as fairly valued. In our view, the 8% runup in the market following the firm’s release is an overreaction to good profitability, especially to a one-time tax gain in GAAP results that we don’t see reflecting fundamentals.