Sensata (ST) Announces Cost Cuts, Provides Long-Term Goals
Sensata Technologies ST announced a series of cost-cutting actions at its Investor Event held on Sep 27. It also provided a financial framework including preliminary guidance for 2026.
Moreover, the company reiterated guidance for third-quarter of 2023 and provided preliminary fourth-quarter 2023 outlook.
Continued economic uncertainty across several end markets has resulted in weak demand. To tackle muted demand, ST is planning to undertake “reductions-in-force” (both voluntary and involuntary) as well as site closures to boost margin performance.
These cost-cutting actions will result in charges (including severance, and site closures) in the range of $16-$20 million in the third quarter of 2023. Annualized savings from cost-cutting actions are anticipated to be between $40 million and $50 million. Sensata expects savings in the fourth quarter of 2023 to be nearly $4-$5 million.
Sensata Technologies Holding N.V. Price and Consensus
Sensata Technologies Holding N.V. price-consensus-chart | Sensata Technologies Holding N.V. Quote
For third-quarter 2023, it envisions revenues in the $980-$1,020 million band, suggesting a decline of 4% to breakeven year over year. Adjusted operating income is projected to be between $183 million and $199 million, indicating a year-over-year decrease of 7% to a rise of 1%.
Adjusted earnings per share (EPS) are estimated in the range of 84-94 cents, suggesting a fall of 1% to a gain of 11%. Adjusted net income is expected in the $129-143 million band, implying a year-over-year decline of 2% to an increase of 9%.
For fourth-quarter 2023, management suggests revenues in the range of $980-$1,020 million. Adjusted operating income is envisioned to be between $186 million and $202 million.
Adjusted EPS is estimated in the 89-99 cents band, suggesting a dip of 7% to an improvement of 3%. Adjusted net income is expected in the range of $136-$150 million, indicating a year-over-year decline of 7% to a rise of 3%.
Long-Term Financial Targets
Sensata expects new business wins to drive the top line going ahead. The company’s electrification business is likely to benefit from ongoing demand for renewable power generation. Management expects to generate about $2 billion in revenues from electrification business by 2026.
For 2023 and 2026, it expects revenues in the range of $4.02-$4.1 billion and $5-$5.3 billion, respectively. Adjusted operating margin is projected in the range of 18.9-19.7% and 21-23% for 2023 and 2026, respectively.
Adjusted EPS is estimated in the range of $3.62-$3.82 and $5.50-$6.30 for 2023 and 2026, respectively.
Sensata also announced a new $500 million buyback authorization. It replaced the prior repurchase program having $167 million remaining authorization as of Sep 22, 2023.
Sensata develops, manufactures and sells innovative sensor-based solutions. It has a diversified portfolio of personalized and unique sensor-rich applications, from automotive braking systems to aircraft flight controls, that are utilized ubiquitously.
ST’s performance is gaining from continued momentum in Performance Sensing business owing to higher automotive and heavy vehicle off-road revenues. Its automotive sector is winning traction due to price realization and rapid market growth.
However, the company is affected due to a softness in Sensing Solutions business on the back of weakness in HVAC and appliance markets, and unfavorable foreign currency movement. Rising macroeconomic uncertainty, stiff competition and a leveraged balance sheet are other concerns.
ST currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader technology space are Asure Software ASUR, Aspen Technology AZPN and Badger Meter BMI. Asure Software and Aspen Technology presently sport a Zacks Rank #1 (Strong Buy) each, whereas Badger Meter currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Asure Software’s 2023 EPS has increased 35% in the past 60 days to 54 cents.
Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average surprise being 676.4%. Shares of ASUR have surged 62.7% in the past year.
The Zacks Consensus Estimate for Aspen Technology’s fiscal 2024 EPS has gained 6.8% in the past 60 days to $6.58.
Aspen Technology’s long-term earnings growth rate is 17.1%. Shares of AZPN have declined 14.1% in the past year.
The Zacks Consensus Estimate for Badger Meter’s 2023 EPS has improved 1.4% in the past 60 days to $2.86.
Badger Meter’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average surprise being 6.7%. Shares of BMI have jumped 61.9% in the past year.
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