TE Connectivity: Solid Growth and Margins, but Valuation Limits Upside Potential

TE Connectivity has diversified its portfolio and is now less dependent on the autos industry. The company has achieved balanced growth and strong margins. However, the valuation leaves limited upside, making it a moderate investment opportunity.

TE Connectivity (NYSE: TEL) has demonstrated significant progress in diversifying its portfolio and reducing its dependence on the autos industry. The company's revenue mix has improved, with AI datacenter interconnects and utility grid hardware now playing a more prominent role. This shift has contributed to balanced growth and strong margins, making TE Connectivity a compelling investment opportunity, albeit with limited upside potential due to its valuation.

According to [1], TE Connectivity's revenue mix has improved, with AI and Energy segments showing strong growth. The company's AI datacenter interconnects have seen significant organic growth, with a run rate annualized at over $2 billion in the last nine months. The Energy segment has also experienced robust growth, driven by solid grid demand in North America and the acquisition of Richards, which brought in complementary grid products.

The company's margin profile has also improved, with the adjusted operating margin increasing to 19.9% in Q3 FY25. The Industrial Solutions segment has seen a significant increase in margins, driven by high-mix, high-content growth segments like AI interconnects and Energy. The DDN segment, specifically, is an accretive margin business, with high-speed interfaces and customized backplane assemblies for AI commanding premium prices.

However, despite these positive developments, TE Connectivity's valuation leaves limited upside potential. The stock trades above most of its historical multiples, indicating that much of the near-term optimism may already be priced in. The company's neutral valuation, combined with its balanced growth and strong margins, makes it a moderate investment opportunity.

In conclusion, TE Connectivity's diversified portfolio and balanced growth make it an attractive investment, but its valuation leaves limited upside potential. Investors should consider TE Connectivity as a solid, but not overly exciting, investment opportunity.

References:
[1] https://seekingalpha.com/article/4813576-te-connectivity-balanced-growth-strong-margins-but-valuation-leaves-limited-upside