Analyst Note| William Kerwin |
We are raising our fair value estimate for narrow-moat Amphenol to $62 per share, up from $60, after the firm handily beat its third-quarter guidance on the top and bottom lines. Amphenol benefitted from robust demand from cloud and industrial customers during the quarter, and notched strong year-over-year growth out of the automotive end market. Against a backdrop of supply-constrained automotive OEMs lowering production which led to sequential drops in automotive revenue for most—if not all—of Amphenol’s peers, we are impressed Amphenol was able to keep automotive sales flat sequentially. In our view, such remarkable outperformance stems not only from Amphenol’s greater content in electric vehicles, but also its unique decentralized organizational structure that gives general managers immense autonomy in their operations. We credit Amphenol’s structure for its steadfast historical performance through numerous market cycles (the firm has gone more than a decade without an annual sales decline), and for it holding the best margins in its peer group. While we expect some modest sequential declines going into the fourth quarter, we think Amphenol will be able to weather current supply and cost pressures better than its peers. Nevertheless, we continue to see shares as rich at current levels.