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A Look at Amphenol’s Key Growth Drivers

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What drove the net sales growth?

Amphenol (APH) has five-year dividend growth of 28%. The company has maintained a good free cash flow position. Net sales of the company have grown consistently in the last five years. Sales rose 13% and 12% in 2016 and 2017, respectively.

Organic growth and the company’s acquisition program drove the Interconnect segment in both years. The Cable segment saw some decline in 2017 due to recovery in commodity costs. FCI Asia was acquired in 2016. In 2017, the company recorded significant growth in the military, commercial aerospace, industrial, automotive, and mobile devices markets offset by information technology, data communication networks, and broadband markets.

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What drove the EPS growth?

Cost of sales rose 12% and 11% in 2016 and 2017, respectively. As a result, gross profit expanded 15% and 13% in 2016 and 2017, respectively. Operating expenses rose 24% and 6% in 2016 and 2017, respectively. The 2016 increase was due to higher acquisition expenses concerning FCI Asia Pte Limited. Operating income grew 9% and 18% in 2016 and 2017, respectively. Other expenses increased 24% and 17% in 2016 and 2017, respectively, due to higher interest expenses. Higher interest expenses translated into an 11% and 15% growth in net income for 2016 and 2017, respectively. EPS expanded 12% and 15% in 2016 and 2017, respectively. The 2016 EPS number was enhanced by share buybacks, while the number of shares outstanding increased in 2017.

How did dividend and prices perform?

A PE of 41.1x and a dividend yield of 0.9% compares to the sector average PE and a dividend yield of 23.7x and 1.7%, respectively. The dividend yield has been below the 1% mark since 2016 despite dividend growth due to higher price gains in 2016 and 2017. Stock prices in 2018 fell with the market carnage.

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What will drive net sales and EPS growth?

2017 acquisitions include the following:

  • Phitek Systems Limited, an aircraft in-flight entertainment interconnect product supplier
  • Telect, a telecommunications hardware company
  • the three sensor businesses of Meggitt and Sunpool Automotive Electronics Limited, a leader in the Chinese automotive antenna market

The company also acquired CTI Industries in 2018, which is a manufacturer of high technology cable assemblies in Canada. The company remains optimistic about the military, industrial, and automotive markets due to the acquisitions. It expects slight moderation for commercial aerospace, mobile network and information technology, and data communication network and broadband markets. Net sales have been projected to rise 8% to $7.5 billion in 2018. EPS has been estimated to grow 10% to $3.4.

Dividend ETFs with exposure to Amphenol

The WisdomTree US LargeCap Dividend ETF (DLN) has a PE of 20.1x and a dividend yield of 2.4%. The WisdomTree US Total Dividend ETF (DTD) has a PE of 20.5x and a dividend yield of 2.4%.

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