Tags: TE | Connectivity | cyclical | TEL

TE Connectivity a Classic Cyclical Stock

By    |   Friday, 18 Nov 2011 01:07 PM

Electronics manufacturer TE Connectivity (TEL) produces the basic components which are required in the electronics of a wide range of products, including cars, industrial equipment and computer networks.

When the economy is doing well, the company is very profitable, but in a recession TEL provides a classic example of how cyclical stocks function.

TE Connectivity was spun off by Tyco International (TYC) in 2007 and originally called Tyco Electronics. The company produces electronic components such as connectors, cable assemblies, relays, antennas and circuit protection devices. The company's business is divided into three segments: transportation solutions, communications & industrial solutions, and network solutions. Revenues are fairly evenly divided between the three segments.

The TE Connectivity fiscal year ends on Sept. 30. For 2011, revenues were $14.3 billion, up 19 percent from $12.1 billion in 2010. Net income for the year was $2.81 per share, up from $2.41.

The growth segment for the year was Network Solutions, which saw revenues increase by 50 percent from 2010. For 2012, the consensus earnings estimate is $4.31 per share on revenues of $15 billion.

Cyclical effects

The $14 billion in revenue in 2011 finally pushed the TE Connectivity sales back to the levels of 2008. For 2009 — when the economy was not growing — revenues dropped to just over $10 billion and the company posted a large loss for the year. Profitability returned in 2010, but investors considering this stock should be aware of the strong correlation between TE Connectivity revenues and economic growth.

Another way to break down the company's sales is to look at the types of products TE Connectivity products go into. Consumer electronics are the final home of 44 percent of revenues and industrial and infrastructure products account for the other 56 percent.

Recently, the analysts at JP Morgan upgraded their rating on TEL to overweight from underweight and increased their target price by $2 per share.

The company next reports on Feb. 2.

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Electronics manufacturer TE Connectivity (TEL) produces the basic components which are required in the electronics of a wide range of products, including cars, industrial equipment and computer networks. When the economy is doing well, the company is very profitable, but...
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Friday, 18 Nov 2011 01:07 PM
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