Neutral on Amphenol - Analyst Blog
27 Marzo 2012 - 12:20PM
Zacks
While Amphenol Corporation (APH) is
convalescing in most of its end-market segments and is making
incipient headways in attaining its long-term targets, certain
lingering downsides still pose a threat to the stock. Hence, we
retain our Neutral recommendation on Amphenol.
Amphenol has an impressive cost-cutting and labor productivity
maximization strategy which also bolsters its multi-national image
in the global economy. With manufacturing units in countries like
China, Mexico, India, etc, the company avails of low-cost labor
which provides a considerable cushion to its operational
productivity. Moreover, Amphenol has functional offices at major
developed economies too such as Australia and Europe besides the
Americas.
The company has always looked for profitable acquisitions backed
by a strong cash balance. Recently, in 2011, Amphenol spent around
$303 million in making two acquisitions in its automotive
end-market segment. This was done with the primary intent of
expanding its product database.
Another impressive aspect of the stock is the various measures
that the company takes to cater to its investors’ needs. A
quarterly dividend hike from 1.5 cents per share to 10.5 cents per
share was announced by the company on January 26, 2012.
Not long before that, the company announced senior notes pricing
of $500 million principal amount due in 2022. Moreover, Amphenol
spent $138 million to buy back 3 million shares in 2011, leaving
the company with 6.6 million shares remaining under its existing 20
million share repurchase program, which is due to expire in January
2014.
Now, even though the upsides look quite encouraging for
Amphenol, there are certain headwinds that can make it difficult
for the company to sustain its performance in the long run. One
such deterrent is the Germany-based FEP acquisition. Though
beneficial, the FEP integration may pose margin pressure for the
company near term.
Looking back at 2011 performance, some usually high-performing
end markets posted deteriorating results. Moreover, margins were
under pressure bearing the added costs from earlier Sidney (NY)
floods.
Amphenol’s international businesses fueled nearly 68% of sales
for the company in 2011. The company’s substantial overseas sales
expose it to the risk of foreign currency rate fluctuations, which
can mar profitability irrespective of its real performance.
The company faces intense competition from big players such as
Molex Inc. (MOLX), Thomas & Betts
Corp. (TNB) and Methode Electronics Inc.
(MEI). Judging by its present condition, we find it prudent to
maintain a sideline view on the company’s stock, maintaining our
Neutral rating for the long term.
AMPHENOL CORP-A (APH): Free Stock Analysis Report
METHODE ELECT-A (MEI): Free Stock Analysis Report
MOLEX INC (MOLX): Free Stock Analysis Report
THOMAS & BETTS (TNB): Free Stock Analysis Report
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