We maintain our $71 fair value estimate for shares of narrow-moat Sensata Technologies ST after its 2023 investor day reinforced our long-term bullishness on its growth opportunities within electrification. Sensata set forth impressive financial targets for 2026, including high-single-digit sales growth that aligns with our model. The firm also raised its long-term target margin range—toward which we hold mild skepticism—but we view the focus on profitability positively. Sensata also announced restructuring efforts to improve profits in the short term against struggling end markets. We continue to see shares as significantly undervalued for long-term investors. We believe the market is underappreciating Sensata’s strong opportunity within electrical protection for autos and heavy vehicles and we look for higher growth over the next three years to drive up the stock.
Sensata’s investor day highlighted its focus on electrification. The firm reiterated its newly narrowed focus on organic electrification, away from automation and acquisitions. We continue to like this narrow focus on what we view as the firm’s best business. Management reiterated existing targets for electrification: $2 billion in sales in 2026 (up from $700 million in 2023), and $50 content per auto in 2026 (up from $25 in 2023.) Positively, the firm has 90% of its 2026 electrification revenue target already awarded in terms of design wins. We expect these targets to be achieved. We see the bulk of the growth coming from electrical protection products like high-voltage contactors, which offer higher pricing and which Sensata sells into strong automakers like Tesla.
For financial targets, Sensata reaffirmed its third-quarter guidance and guided for a relatively sequentially flat fourth quarter. The firm’s 2026 model includes a revenue midpoint of $5.1 billion and non-GAAP operating margin midpoint of 22%, which implies 8% growth and 270 basis points of margin expansion off of 2023 guidance.
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