TE Connectivity (TEL): An In-Depth Analysis of Its Market Value
TE Connectivity Ltd (NYSE:TEL) saw a daily loss of -2.26% and a 3-month loss of -13.55%. With an Earnings Per Share (EPS) (EPS) of 6.48, the question arises: is the stock modestly undervalued? This article aims to answer this question through a comprehensive valuation analysis. Read on to uncover the true value of TE Connectivity.
Company Overview
TE Connectivity Ltd (NYSE:TEL) is the world's largest electrical connector supplier, providing interconnect and sensor solutions to the transportation, industrial, and communications markets. Operating in 150 countries, TE Connectivity has a broad portfolio that forms the electrical architecture of its end customers' cutting-edge innovations. With a stock price of $121.78 and a GF Value of $144.61, TE Connectivity appears to be modestly undervalued. The following analysis delves deeper into the company's value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
TE Connectivity's stock is believed to be modestly undervalued, according to GuruFocus Value calculation. At its current price of $121.78 per share and the market cap of $38.20 billion, TE Connectivity's stock is believed to be modestly undervalued. Consequently, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. A good starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. TE Connectivity has a cash-to-debt ratio of 0.27, which is worse than 84.26% of 2363 companies in the Hardware industry. However, GuruFocus ranks the overall financial strength of TE Connectivity at 7 out of 10, indicating that the financial strength of TE Connectivity is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. TE Connectivity has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $16.40 billion and Earnings Per Share (EPS) of $6.48. Its operating margin is 16.73%, which ranks better than 89.57% of 2444 companies in the Hardware industry. Overall, the profitability of TE Connectivity is ranked 8 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of TE Connectivity is 8.2%, which ranks better than 60.99% of 2325 companies in the Hardware industry. The 3-year average EBITDA growth is 11.7%, which ranks better than 51.79% of 1954 companies in the Hardware industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, TE Connectivity's ROIC was 14.79, while its WACC came in at 7.86.
Conclusion
In conclusion, the stock of TE Connectivity is believed to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 51.79% of 1954 companies in the Hardware industry. To learn more about TE Connectivity stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
