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Why Is Sensata (ST) Down 2.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Sensata (ST). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sensata due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sensata Q1 Earnings Beat Estimates on Record Revenues

Sensata reported strong first-quarter 2021 results as the business recovery that started during the second half of 2020 gained steam. The top line and the bottom line surpassed the respective Zacks Consensus Estimate backed by strength in the business model. Notably, the company registered record revenues with impressive performances in the automotive market (up 910 basis points year over year) and heavy vehicle market (up 1,070 basis points), driven by holistic growth.

Bottom Line

On a GAAP basis, net income in the March quarter increased substantially to $53.7 million or 34 cents per share from $8.4 million or 5 cents per share in the prior-year quarter. The remarkable improvement was primarily attributable to top-line growth.

On an adjusted basis, quarterly net income was $137.6 million or 86 cents per share compared with $83.2 million or 53 cents per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 12 cents.

Revenues

Quarterly revenues aggregated $942.5 million compared with $774.3 million in the year-ago quarter. The record revenues were largely driven by sustained business activities in Automotive and Industrial businesses with a rebound in market which, in turn, translated into higher order schedules. The top line beat the consensus estimate of $890 million. Sensata’s robust supply chain mechanism and flexible business model were additional tailwinds. This demonstrates healthy prospects for Sensata’s core sensing operations, thereby accelerating its growth momentum in the long run.

The company is expanding its electrification ecosystem to facilitate the seamless transition to electric vehicles as it aims to be a leading provider of mission-critical sensor-rich hardware and software solutions. Markedly, Sensata has a rich portfolio of high-voltage protection and battery management systems. The joint venture with Churod Electronics has further expanded its electrical protection capabilities for mass-market applications.

Segment Results

Performance Sensing revenues improved to $714.5 million from $568.7 million in the year-ago quarter. Accounting for 75.8% of total revenues, the increase was primarily due to solid automotive, heavy vehicle and off-road businesses owing to recovery in customer production. Segment operating income jumped to $195.8 million from $135 million on higher revenues and savings from restructuring and other cost-reduction initiatives.

Sensing Solutions revenues increased to $228 million from $205.6 million in the year-ago quarter. Accounting for 24.2% of total revenues, the year-over-year improvement was led by ramped up production and uptrend in HVAC (heating, ventilation, and air conditioning) business. Segment operating income increased to $66.9 million from $56.5 million, mainly due to higher revenues and cost cuts.

Other Details

Total operating expenses were $785.1 million compared with $715.7 million in the prior-year quarter, primarily due to higher cost of revenues. Adjusted operating income was $198.1 million, up from $136.7 million in the year-ago quarter. The uptick was mainly caused by higher revenues, savings from cost reduction programs and favorable foreign currency translation effects. Adjusted EBITDA totaled $227.6 million during the quarter, up from $164.3 million.

During the quarter, the company completed the acquisition of Lithium Balance to add battery management solutions for heavy vehicle and industrial applications in its product depth. This represents an incremental $500 billion in addressable market for Sensata by 2030.

Cash Flow & Liquidity

In the first three months of 2021, Sensata generated $104.5 million of net cash from operating activities compared with $98.5 million in the prior-year period. With effective working capital management and cost reductions, free cash flow for the same period came in at $77.3 million compared with $69 million a year ago. As of Mar 31, 2021, the company had $1,893.9 million in cash and equivalents with $3,961.4 million of net long-term debt.

Guidance Up

With solid quarterly results, Sensata increased its earlier guidance for 2021. For 2021, Sensata expects revenues in the range of $3,685-$3,825 million (up 21-26% year over year) compared with prior expectations of $3,425-$3,575 million (up 12-17%). Adjusted earnings per share are estimated in the band of $3.20-$3.50 (up 45-58%) compared with $3.06-$3.42 (up 38-55%), while adjusted net income is expected to be $509-$557 million (up 46-60%) compared with $488-$544 million (up 40-56%).

For the second quarter, the company expects revenues in the range of $960-$990 million (up 67-72% year over year). Adjusted earnings per share are estimated in the band of 84-90 cents (up 367-400%), while adjusted net income is expected to be $134-$144 million (up 385-420%).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 8.96% due to these changes.

VGM Scores

Currently, Sensata has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sensata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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