Amphenol Earnings: Good Performance in Mixed End Markets Shows Fundamental Strength and Wide Moat

We maintain our $83 fair value estimate for shares of wide-moat Amphenol APH after the firm reported solid third-quarter results and guided for a decent fourth quarter. Amphenol continues to perform well amid mixed underlying end market results, which we see as evidence of the firm’s ability to grow content in end products and its operating resiliency. Electric vehicles, or EVs, continue to be a significant driver of growth for Amphenol, and we’re starting to see green growth shoots from artificial intelligence, or AI. We remain confident in Amphenol’s long-term growth drivers and its terrific structural profitability that undergirds our wide moat rating. We aren’t overly concerned about our expectation for a modest top-line decline this year as we see the firm outperforming its underlying markets and believe it is set up for good growth after 2024. We see shares as close to fully valued, but tout Amphenol as a blue-chip stock to buy upon a pullback.

Third-quarter sales dipped 3% year over year but rose 5% sequentially to $3.2 billion. Automotive sales were the best performing end market, rising in the low teens year over year with continued outperformance driven by increasing EV penetration. Amphenol’s communications markets have been weak this year in a soft spending environment for telecom customers but saw upside in the quarter that management attributed to AI spending. Amphenol’s industrial sales remained soft with modest single-digit declines. Fourth-quarter sales guidance implies a slight sequential decline from third-quarter levels, but we expect further strength in auto and AI sales and expect more of the firm’s markets to rebound in 2024.

Amphenol’s profitability remains impressive, with non-GAAP operating margin rising 40 basis points sequentially to 20.8%. Guidance for the fourth quarter implies modest margin compression, but we expect Amphenol to remain above 20% non-GAAP operating margin, which we view as exceptional.