3. TE Connectivity (NYSE:TEL)
Market Cap as of October 22: $44.64 billion
Number of Hedge Fund Holders: 46
TE Connectivity (NYSE:TEL) designs and manufactures a broad portfolio of electronic components and electrical parts, including various types of connectors, heat shrink tubing, automotive relays, and a wide range of sensors. These products are used in industries such as transportation, industrial applications, communications, medical devices, and energy, as they are essential for connecting and protecting electrical signals, power, and data, enabling critical applications to operate safely and reliably.
In the third quarter of FY2024, the company’s revenues declined 0.48% as compared to the prior year’s third quarter, generating an amount of $3.98 billion. Overall, orders increased 4% year-over-year and 3% sequentially. The Communications segment led this growth, surging over 50% sequentially driven by AI applications. Transportation orders declined slightly due to commercial transportation weakness.
In the Transportation segment, auto sales grew 4%, outpacing the global auto production decline of 1%. Content growth had strong double-digit sales in China offsetting declines in Europe and North America. Commercial Transportation declined 8%, primarily due to European weakness, and is expected to remain down in the fourth quarter. Sensors sales declined due to market weakness and portfolio optimization.
In the Industrial Solutions segment, sales were down 2%, with strength in aerospace, defense, marine, medical, and energy offsetting weakness in industrial equipment. The Communications segment saw a 32% growth in data and devices. Appliances grew 12%, driven by both the Americas and China.
Despite challenging market conditions, the company has demonstrated strong resilience and operational excellence. Its strategic focus on secular growth trends, coupled with its ability to drive margin expansion and generate strong cash flow, positions it well for continued success.
The London Company Large Cap Strategy stated the following regarding TE Connectivity Ltd. (NYSE:TEL) in its Q2 2024 investor letter:
“Initiated: TE Connectivity Ltd. (NYSE:TEL) – TEL designs and manufactures connectors and sensors, supplying solutions to the transportation, industrial, and communications industries. The critical components that TEL sells have long life cycles and they make up a small percent of the overall cost of materials for a complex electronic systems (i.e. low cost but high-cost failure products), creating high switching costs and barriers to entry. TEL has leading share in the global connector market (including 30-35% share in automotive) with leverage to secular growth from the ‘electrification’ of multiple end markets. TEL’s management team has enacted successful cost- realignment strategies, driving significant margin improvement and leading to mid-teens returns on invested capital. TEL fits our process well. It has a low level of net debt, generates healthy cash flows, returns a significant amount of capital back to shareholders through its dividend and buyback program, and it currently trades at a discount to our estimate of intrinsic value and a discount to its peers. Given its strong competitive position, capital allocation philosophy, and favorable industry tailwinds, we believe TEL presents an opportunity to own a high quality compounder.”
