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TE Connectivity Ltd (NYSE:TEL) is well positioned to continue benefiting from content gain opportunities in the auto market and management has done a good job in increasing its exposure to hyper scale customers, according to Goldman Sachs.
The Analyst
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Goldman Sachs' Mark Delaney upgraded TE Connectivity from Sell to Neutral with a price target lifted from $94 to $101.
The Thesis
TE's revenue profile has historically been correlated to prior quarter orders (excluding SubSea), Delaney said in a note. Taking a look at the company's backlogs last quarter of $3.525 billion and assuming the SubSea revenue remains at a similar level of $150 to $225 million, the company's revenue next quarter could come in at $3.7 billion versus management's own guidance of $3.55 to $3.65 billion.
There are multiple indicators that demand for TE's products remains strong, the analyst said. The connector confidence index that's based on monthly industry data from Bishop & Associate shows monthly auto sales are flat in the US, up 4 percent in China and up 5 percent in Europe during the first quarter. Moreover, industry demand remains strong with PMI readings above 50 in the three regions throughout the first quarter.
Despite strong backlogs and favorable macro trends, the analyst says TE's growth will still decelerate in 2019 given "somewhat elevated" inventory levels in the auto supply chain and other end markets (like appliances) are near the higher-end of historical levels.
Price Action
Shares of TE Connectivity were trading higher by 1.6 percent at $102.47.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.