Amphenol: Sustainable Growth And Margins

seekingalpha05-28

We analyzed the various end-market segments of Amphenol to determine how the company could maintain its sustainable growth.In terms of margins, we explored the reasons the company is able to maintain ...

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href=https://seekingalpha.com/article/4696004-amphenol-sustainable-growth-and-margins><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>We analyzed the various end-market segments of Amphenol to determine how the company could maintain its sustainable growth.In terms of margins, we explored the reasons the company is able to maintain ...</p>\n\n<a href=\"https://seekingalpha.com/article/4696004-amphenol-sustainable-growth-and-margins\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"MSFT","symbol_name":"微软","start_time":0,"source_url":"https://seekingalpha.com/article/4696004-amphenol-sustainable-growth-and-margins","article_id":"2438301743","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1488457074/image_1488457074.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2438301743","pubTimestamp":1716905352,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"We analyzed the various end-market segments of Amphenol to determine how the company could maintain its sustainable growth.In terms of margins, we explored the reasons the company is able to maintain ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"MSFT":"微软","BK4504":"桥水持仓","ADI":"亚德诺","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","IE00BJJMRX11.SGD":"Janus Henderson Balanced A Acc SGD","IE00BMPRXN33.USD":"NEUBERGER BERMAN 5G CONNECTIVITY \"A\" (USD) ACC","LU0642271901.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD-H","BYDIF":"Byd Electronic International Co Ltd.","LU1815336760.USD":"THREADNEEDLE (LUX) GLOBAL TECHNOLOGY \"AUP\" (USD) INC","IE00BDCRKT87.USD":"PINEBRIDGE GLOBAL DYNAMIC ASSET ALLOCATION \"ADC\" (USD) INC","APH":"安诺电子","LU0079474960.USD":"联博美国增长基金A","LU1983260115.SGD":"Janus Henderson Horizon Global Sustainable Equity A2 SGD-H","BK4145":"电子制造服务","TTDKY":"TDK Corp.","GB00BDT5M118.USD":"天利环球扩展Alpha基金A Acc","LU0056508442.USD":"贝莱德世界科技基金A2","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","IE00BJJMRY28.SGD":"Janus Henderson 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ACC","BK4588":"碎股","GOOG":"谷歌","BK4141":"半导体产品","LU0211327993.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (USD) ACC","BK4503":"景林资产持仓","LU0127658192.USD":"EASTSPRING INVESTMENTS GLOBAL TECHNOLOGY \"A\" (USD) ACC","FXCOF":"Foxconn Technology Co., Ltd.","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1  Acc SGD-H","BK4561":"索罗斯持仓","LU1316542783.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD"},"translate_title":"安费诺：可持续增长和利润","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMZN":1,"TTDKY":1,"TEL":1,"SSNLF":1,"MSFT":1,"MRVL":1,"LPL":1,"GOOG":1,"GLW":1,"FXCOF":1,"BYDIF":1,"ADI":1,"APH":1,"AUOTY":1},"content_text":"We analyzed the various end-market segments of Amphenol to determine how the company could maintain its sustainable growth.In terms of margins, we explored the reasons the company is able to maintain margin stability.We also examined its acquisition strategy and examined the opportunities and risks it could face in the future in regard to this.   zbruch In our previous analysis, we highlighted Amphenol Corporation's (NYSE:APH) highly competitive landscape faced with global saturation due to the industry’s low barrier to entry. Despite this, we believed Amphenol's diversified product mix and presence across various end-markets positioned it favorably. We also noted the company’s acquisition strategy which spans over a decade aligned with the industry's consolidation trend, thus enhancing its scale and expertise. In this analysis of Amphenol, we examined whether Amphenol’s strategies could contribute to the company’s sustainability. The company’s management highlighted its highly diversified end markets with no end market representing more than 25% of the company’s revenues, prompting us to examine its end markets growth outlook. Moreover, we also looked at its margins and examined the underlying reason for its stability. Lastly, we analyzed the company’s cash flow and determined whether the company could sustain its acquisition strategy. Robust End Markets Outlook In the first section, we examined the company’s revenue growth trend by end-markets. Company Revenue Growth Trend   Revenue by End-market ($ mln) 2015 2016 2017 2018 2019 2020 2021 2022 2023 8Y Average   Industrial 947 1,132 1,332 1,558 1,645 1,892 2,719 3,156 3,139     Growth (%)   19.5% 17.7% 17.0% 5.6% 15.0% 43.7% 16.1% -0.5% 16.8%   Automotive 1,002 1,132 1,332 1,476 1,563 1,462 2,175 2,651 2,888     Growth (%)   12.9% 17.7% 10.8% 5.9% -6.5% 48.8% 21.9% 8.9% 15.1%   Mobile Devices 1,058 880 982 1,394 1,069 1,290 1,305 1,389 1,255     Growth (%)   -16.8% 11.5% 42.1% -23.3% 20.6% 1.2% 6.4% -9.6% 4.0%   IT Datacom 891 1,320 1,402 1,558 1,563 1,806 2,284 2,651 2,385     Growth (%)   48.2% 6.2% 11.1% 0.3% 15.5% 26.5% 16.1% -10.0% 14.2%   Mobile Networks 445.5 565.8 560.9 656.2 658.0 515.9 543.8 631.2 502.2     Growth (%)   27.0% -0.9% 17.0% 0.3% -21.6% 5.4% 16.1% -20.4% 2.9%   Broadband 334.1 377.2 420.7 410.1 329.0 344.0 435.1 631.2 502.2     Growth (%)   12.9% 11.5% -2.5% -19.8% 4.5% 26.5% 45.1% -20.4% 7.2%   Military/Defense 557 566 701 820 987 1,032 1,196 1,136 1,381     Growth (%)   1.6% 23.9% 17.0% 20.3% 4.5% 15.9% -5.0% 21.6% 12.5%   Commercial Aerospace 334.1 314.3 280.5 328.1 411.3 258.0 217.5 378.7 502.2     Growth (%)   -5.9% -10.8% 17.0% 25.4% -37.3% -15.7% 74.1% 32.6% 9.9%   Total 5,569 6,286 7,011 8,202 8,225 8,599 10,876 12,623 12,555     Growth (%)   12.9% 11.5% 17.0% 0.3% 4.5% 26.5% 16.1% -0.5% 10.6%   Click to enlarge Source: Company Data, Khaveen Investments From the table, the company’s 8-year average revenue growth was 10.6%, driven by the strong growth in Industrial (16.8%), Automotive (15.1%), and IT Datacom (14.2%). In contrast, the Mobile Devices, Mobile Networks, and Broadband average revenue growth have all underperformed compared to the average total revenue growth with single-digit growth rates. To better understand the reasons for the segment’s performance, we examined each segment below. Industrial In our previous analysis of Analog Devices (ADI), we highlighted a slowdown in global Industrial Production Growth in 2023 with flattish growth rates YoY, and so we believe it could be the main factor contributing to the flat growth rate of Amphenol’s Industrial segment in 2023.   Industrial Revenue ($ mln) 2016 2017 2018 2019 2020 2021 2022 2023 Average   Industrial 1,132 1,332 1,558 1,645 1,892 2,719 3,156 3,139     Total Growth (%) 19.5% 17.7% 17.0% 5.6% 15.0% 43.7% 16.1% -0.5% 16.8%   Organic Growth (%) 2% 15% 9% -3% 11% 27% 13% -7% 8.4%   Click to enlarge Source: Company Data, Khaveen Investments In addition, from 2016 to 2023, Industrial's total revenue growth rate was higher than its organic revenue growth rate. Thus, we believe that the company's acquisition strategy was effective and contributed to overall segment growth, resulting in an average revenue growth rate of 16.8% over the last eight years. According to Statista, the Industrial Product market is expected to exhibit a CAGR of 7.2%, which is in line with the segment’s organic revenue growth rate of 8.4%. Automotive   Automotive Revenue ($ mln) 2016 2017 2018 2019 2020 2021 2022 2023 Average   Automotive 1,132 1,332 1,476 1,563 1,462 2,175 2,651 2,888     Total Growth (%) 12.9% 17.7% 10.8% 5.9% -6.5% 48.8% 21.9% 8.9% 15.1%   Organic Growth (%) 8% 11% 7% -2% -8% 41% 29% 12% 12.3%   Click to enlarge Source: Company Data, Khaveen Investments Similarly, Automotive’s total revenue growth rate from 2016-2021 outpaced its organic revenue growth rate. However, the segment's organic growth in 2022 and 2023 outpaced total growth, implying that the company's internal products drove the segment during these two years. In addition, management highlighted in both Q4 2022 and Q4 2023 earnings briefings that the positive revenue growth reflected “broad strength across the automotive market, including, in particular, next-generation electronics, for example, electric and hybrid drivetrains.” According to MarketsandMarkets, the EV market is expected to grow at a CAGR of 13.7%, which we believe bodes well for the company's growth outlook. Mobile Devices Mobile Devices’ 8-year average revenue growth is 4.0%. Management highlighted that it is one of the company’s most volatile markets, and the decline in 2023 was due to other mobile device applications (except for smartphones). In addition, they highlighted the reduced sales of products for smartphones, laptops, tablets, and wearables which resulted in the lower revenue growth rate in this segment. We believe that it could also be due to the mature market and low 5G adoption from customers. Additionally, Gartner highlighted that “consumers are holding on to their phones longer than expected”, thus slowing down the shipments. Overall, the CAGR of the Global Mobile Computing Devices market is 4.7%, which is in line with the segment’s average revenue growth rate of 4.0%. Mobile Networks According to the company, the Mobile Networks segment includes products that are used in 5G networks, and 5G network adoption has been on an increasing trend in recent years. We observed that its 8-year average revenue growth is 2.9%, pulled down by high negative revenue growth in 2020 (-21.6%) and 2023 (-20.4%). Amphenol According to management, the company’s Mobile Networks revenue growth in 2021 (5.4%) and 2022 (16.1%) were attributed to increasing demand “for products used in next generation 5G equipment”. However, its revenue growth in 2023 declined by 20.4%. According to Omdia, the global sales of radio access network equipment declined by 11%, and the global Telecom equipment market fell by 5% according to Dell’Oro Group. Management also highlighted the spending reductions from customers in the Mobile Network. Moreover, the segment’s revenue in 2019 and 2020 was affected by the “impact of the U.S. government restrictions on certain Chinese customers that had been imposed in 2019, as well as other impacts related to the COVID-19 pandemic.” According to Grand View Research, the Network Equipment market is expected to grow at a CAGR of 3.7%, which also aligns with the segment’s 8-year average revenue growth rate of 2.9%. IT Datacom Amphenol’s IT Datacom segment includes a wide range of applications from data centers to traditional internet-enabling systems such as web service providers. Amphenol The segment revenue declined by 10% in 2023, and management highlighted that “strong demand for AI-related applications was more than offset by inventory adjustments that we saw amongst our traditional IT Datacom applications”. In 2023, the top 3 cloud service providers (including AWS (AMZN), Microsoft (MSFT), and Google (GOOG)) capex growth was flattish at only 0.24%. We believe the negative revenue growth could be attributed to a 6% decline in server market shipment in 2023 by TrendForce and a 7% decline in the storage system market by Dell’Oro Group. However, they expected a recovery in these markets with positive growth in 2024. Additionally, we highlighted in our previous analysis of Marvell (MRVL) that the cloud market capex growth would increase by 27% in 2024. Therefore, we believe the IT Datacom segment is poised for a recovery going forward. Broadband For Broadband, while management mentioned in the earnings briefing that “sales were down by 7%”, our calculations based on the disclosed data show that revenue growth in 2023 was much worse at -20.4%. The Dell’Oro Group reported that Broadband Equipment spending declined by 9%, which aligns with management's reason for the “continued pause in broadband operator spending.” Broadband’s strong revenue growth in 2021 and 2022 was mainly attributed to increased spending by cable operators and synergies from the acquisition of Halo, as highlighted by management. Hence, we expect the segment growth to stabilize going forward. The global broadband market is expected to grow at a CAGR of 7.2%, in line with Amphenol’s Broadband 8-year average revenue growth rate. Military / Defense The segment’s average revenue growth rate is 12.5%, becoming the fourth-highest growth rate segment, and management highlighted its strong “operational execution, as well as broad strength across most segments of the defense market, and that particularly related to naval, aircraft engine, helicopter, communications, and space-related applications.” Moreover, its revenue in 2023 increased by 21.6% compared to 2022, which could be partially due to the increase in global military expenditures of 6.8%. We believe the remaining growth could be due to its strong internal operation. Commercial Aerospace According to McKinsey, the airlines were the most affected segment in aviation sectors due to COVID-19. Amphenol’s Commercial Aerospace segment revenue during 2020-2021 declined significantly by -37.3% and -15.7%. However, the segment saw a strong recovery post-pandemic with 74.1% and 32.6% revenue growth in 2022-2023. We believe this is in line with commercial aerospace recovery after COVID-19, according to Accenture. Moreover, Accenture estimated the market revenue in 2023 to increase by 14% YoY, in line with 2019 levels. Excluding the COVID-19 period (2020-2021) and the recovery period (2022-2023), the company’s Commercial Aerospace average revenue growth rate in 2016-2019 was only 6.4%. In terms of outlook, the end market is expected to grow at a CAGR of 7.8%, driven by an increase in demand for commercial airplanes. Overall Outlook We compiled a table of all Amphenol’s segments by end market, including their 2023 breakdown, market CAGR, and 8-year average revenue growth rate.   Electrical Component End Market 2023 Breakdown (%) CAGR Amphenol’s 8Y Average   Industrial 25% 7.2% 16.8%   Automotive 23% 13.7% 15.1%   Mobile Devices 10% 4.7% 4.0%   IT Datacom 19% 13.2% 14.2%   Mobile Networks 4% 3.7% 2.9%   Broadband 4% 7.2% 7.2%   Military/Defense 11% 5.0% 12.5%   Commercial Aerospace 4% 7.8% 9.9%   Weighted Average   9.2% 10.6%   Click to enlarge Source: Statista Market Insights, Data Bridge Market Research, Mordor Intelligence, Grand View Research, Business Research Insights, Precedence Research Overall, most segments’ CAGR and average revenue growth are relatively in line with its 8-year average revenue growth, except for Industrial and Military/Defense. We previously analyzed that Amphenol’s Industrial segment outperformed the market due to its inorganic revenue growth from acquisitions, and we expect the company to continue to capitalize on the inorganic revenue. Moreover, its Military/Defense revenue exhibited more than 15% growth rate in 5/8 years, thus reflecting a strong internal revenue generation. Therefore, we believe that the company’s historical average revenue growth rate by end markets is a more accurate method to forecast the company’s revenue growth. We tapered down all segments (except for Mobile Devices and Mobile Networks due to their maturity growth rate) by 1% in 2025 and 2026% as our conservative measures. Our forecast revenue growth of 12.9% in 2024F aligns with analysts’ consensus of 11.38%.   Revenue by End-market ($ mln) 2023 2024F 2025F 2026F 2027F 2028F   Industrial 3,139 3,665 4,242 4,868 5,538 6,244   Growth (%) -0.5% 16.8% 15.8% 14.8% 13.8% 12.8%   Automotive 2,888 3,322 3,789 4,284 4,800 5,331   Growth (%) 8.9% 15.1% 14.1% 13.1% 12.1% 11.1%   Mobile Devices 1,255 1,306 1,358 1,413 1,469 1,528   Growth (%) -9.6% 4.0% 4.0% 4.0% 4.0% 4.0%   IT Datacom 2,385 2,725 3,086 3,463 3,852 4,247   Growth (%) -10.0% 14.2% 13.2% 12.2% 11.2% 10.2%   Mobile Networks 502.2 517 531 546 562 578   Growth (%) -20.4% 2.9% 2.9% 2.9% 2.9% 2.9%   Broadband 502.2 538 572 602 627 648   Growth (%) -20.4% 7.2% 6.2% 5.2% 4.2% 3.2%   Military/Defense 1,381 1,553 1,732 1,913 2,095 2,272   Growth (%) 21.6% 12.5% 11.5% 10.5% 9.5% 8.5%   Commercial Aerospace 502.2 552 601 649 694 735   Growth (%) 32.6% 9.9% 8.9% 7.9% 6.9% 5.9%   Total 12,555 14,178 15,911 17,738 19,637 21,582   Growth (%) -0.5% 12.9% 12.2% 11.5% 10.7% 9.9%   Click to enlarge Source: Company Data, Khaveen Investments Stable Profit Margins In the second section, we examined the reasons for the company’s margin stability, given its stable expense margins over the past 10 years. Its COGS margins varied by only 1.6%, its R&D margin fluctuated by a mere 0.9%, and it was 1.9% for the SG&A margin and 0.7% for the D&A margin. Company Data, Khaveen Investments Cost Control In the Annual Report, the company highlighted cost control as one of its strategies by maintaining a competitive cost structure and managed by over 130 general managers across all of its business. Amphenol Moreover, the company’s Research and Development focuses mainly on the product areas that have the “potential for broad market applications and significant sales within a one- to-three-year period”. We believe these initiatives have enabled the company to control costs effectively, reflected by its extremely stable expense margins over the past 10 years. Prudent Working Capital Management Not only that, but management also highlighted in the earnings briefings that the company has “superior execution and disciplined working capital management.” Hence, we examined its working capital components to verify the statement.   Efficiency Analysis 2015 2016 2017 2018 2019 2020 2021 2022 2023 Average   Receivables Turnover 5.00x 5.12x 4.76x 4.84x 4.66x 4.66x 4.94x 4.96x 4.78x 4.86x   Payables Turnover 6.00x 6.37x 5.76x 5.94x 6.03x 5.66x 5.82x 6.26x 6.06x 5.99x   Inventory Turnover 4.21x 4.53x 4.40x 4.48x 4.16x 4.06x 4.22x 4.11x 3.79x 4.22x   Days Sales Outstanding (days) 73 71 77 75 78 78 74 74 76  75    Days Payables Outstanding (days) 61 57 63 61 61 64 63 58 60  61    Days Inventory Outstanding (days) 87 81 83 81 88 90 87 89 96  87    Cash conversion Cycle (days) 99 95 96 95 105 104 98 104 113  101    Click to enlarge Source: Company Data, Khaveen Investments From the table, overall, the company’s average ratios and days outstanding show a small deviation from the minimum and maximum figures in the past 10 years, indicating a very stable working capital. Regarding its cash conversion cycle, even though a shorter number of days would be preferable, the company’s cash conversion days are also stable during the same period, with an average of 101 days. Therefore, we believe that the company seems to have decent working capital management control, which is likely to help it maintain stable margins. Manufacturing Facilities In our previous analysis of Amphenol, we highlighted the company’s diversified manufacturing facilities in lower-cost countries to reduce costs. Hence, we examined whether this factor could also contribute to the company’s margin stability. Company Data, Khaveen Investments We compiled the number of manufacturing facilities and their breakdown. Over the past 3 years, Amphenol has increased its facility count from 230 to 280. Furthermore, its lease facilities have increased from 68.2% to 70.4%, accounting for twice as much as non-lease facilities. We believe this could be the reason for the company’s low depreciation and amortization (D&A) margin, averaging only 3.4% over the past 10 years. Moreover, its D&A margins were relatively stable in the range of 3.1%-3.8%.   Expense Analysis (% of revenue) 2015 2016 2017 2018 2019 2020 2021 2022 2023 Average   Depreciation & Amortization 3.1% 3.1% 3.5% 3.2% 3.7% 3.8% 3.6% 3.6% 3.1% 3.4%   Click to enlarge Source: Company Data, Khaveen Investments Examining Amphenol’s top 10 competitors, highlighted in our previous analysis, the average D&A as % of Revenue was 9.4%, which was 6.0% higher than Amphenol’s average. Hence, we believe that Amphenol’s strategy of leasing facilities instead of owning them has resulted in its low and stable D&A margins, and subsequently, lower expense margins.   Depreciation Comparison Revenue ($ bln) Depreciation & Amortization ($ bln) D&A / Revenue (%)   BOE 24.67 4.82 19.5%   LG Display Co., Ltd. (LPL) 16.12 3.37 20.9%   TE Connectivity (TEL) 16.02 0.79 5.0%   BYD Electronic (OTCPK:BYDIF) 18.37 0.43 2.4%   TDK Corporation (OTCPK:TTDKY) 14.88 1.35 9.1%   GoerTek Inc. 14.67 0.51 3.5%   Corning Incorporated (GLW) 13.60 1.37 10.1%   Foxconn (OTCPK:FXCOF) 11.62 0.19 1.6%   Samsung Electro-Mechanics (OTCPK:SSNLF) 6.76 0.63 9.3%   AUO Corporation (OTCPK:AUOTY) 7.85 0.99 12.6%   Average     9.4%   Click to enlarge Source: Company Data, Industry Research Biz, The Wall Street Journal, Macrotrends, Khaveen Investments  Margins Outlook Overall, the company’s cost control strategies, including prudent working capital management and leasing manufacturing facilities, have supported its stable expense margins over the past 10 years. Consequently, we anticipate this stability to continue going forward, given that there were no significant internal changes and the company's historical track record of maintaining stable margins over the same period. Cash Flow Analysis In our previous analysis of Amphenol, we highlighted the company’s acquisition strategy, which has been carried out for more than a decade. Additionally, the company acquired 10 new companies in 2023, and “look forward to continuing to have great acquisitions in the future”. Hence, we examined the company’s cash flow and net debt to determine if it could maintain its current strategy by doing more acquisitions moving forward. Acquisition Cost and Revenue   Amphenol Acquisitions 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Average   Number of Acquisitions 2 3 5 5 3 9 2 7 2 10     Acquisition Revenue ($ mln) 361.6 62.8 606.3 222.0 209.1 269.2 209.3 728.7 116.3 815.3     Acquisition Cost ($ mln) -518.2 -199.8 -1,305.1 -265.5 -158.9 -937.4 -50.4 -2,225.4 -288.2 -970.4     Acquisition Revenue % Acquisition Cost (%) 69.8% 31.4% 46.5% 83.6% 131.6% 28.7% 415.3% 32.7% 40.4% 84.0% 96.4%   P/S Ratio 1.43 3.18 2.15 1.20 0.76 3.48 0.24 3.05 2.48 1.19 1.92   Click to enlarge Source: Source: Company Data, Khaveen Investments The 5-year price-to-sales (P/S) ratio for Amphenol’s acquisition stands at 2.09, whereas the 5-year average P/S ratio for Amphenol is 3.42. This suggests that the company itself is comparatively pricier than acquiring other companies. Therefore, we view the acquisition strategy positively for Amphenol, as it allowed the company to acquire cheaper companies than itself and also contributes to high inorganic revenue growth for the company in the Industrial and Automotive segments as discussed in the first section. Free Cash Flow Projection Company Data, Khaveen Investments From the chart, Amphenol’s free cash flow margin (total investing cash flow) fluctuated due to the acquisitions over the years with an average of 7.5%. However, our adjusted free cash flow margin (capex only) showed a higher margin at an average of 14.6%. Additionally, the margin was relatively stable and within the range of 11.7%-18.1% in the past 10 years. Our projections for Amphenol's capex and other investing cash flows are based on their five-year historical average margins relative to total revenue. Our forecast indicated a capex/revenue margin of 3.2% and the Investing Cash Flow/revenue margin of 7.4%, reflective of the company's potential acquisition cost based on its acquisition strategy. Despite anticipated continued acquisitions, we expect the company's forecasted free cash flow margins to remain stable over the projected period. Net Debt Projection Company Data, Khaveen Investments Amphenol’s Debt from 2014-2021 showed an increasing trend, but it started to decline after 2021. Overall, its cash-to-debt ratio from 2014-2023 exhibited an average of 0.29x, but the companies have acquired more than 50 companies during the same period. This suggests that the company has the capability to make more acquisitions in the future, and we expect its cash-to-debt ratio to increase going forward from 0.2x to 0.5x in 2028F due to an improved cash level. Strategy Outlook Overall, even though we have incorporated potential acquisition cost in our analysis, our forecast shows a stable FCF margin and an increase in the cash-to-debt level. In the first section, we identified that inorganic revenue contributed mainly to the strong growth in high-growth segments including Industrial, Automotive, and IT Datacom. Thus, we believe Amphenol could continue its acquisition strategy to drive its revenue growth going forward. Risk: Acquisitions Could Become More Expensive Simply Wall Street In the third section, we identified that Amphenol’s acquisition strategy would benefit the company, as it exhibited a lower average P/S ratio than the company itself (2.09x vs 3.42x). Nevertheless, considering the upward trend in the Tech sector's P/S ratio, which has reached an average of 5.8x over the past three years, we anticipate that acquisition costs may escalate, hampering its acquisition strategy by potentially impacting Amphenol's free cash flow margins adversely. Verdict Seeking Alpha, GuruFocus, Khaveen Investments We compiled Amphenol and its leading competitors’ EV/EBITDA ratio in the chart above. The industry average EV/EBITDA ratio is 14.03x, much lower than Amphenol’s EV/EBITDA TTM of 24.17x. However, it is worth noting that all of these companies (except for Amphenol) are not based in the US. Therefore, we believe it is more appropriate to use the company’s historical average EV/EBITDA (20.41x) for our valuation.   Comparable Valuation EV/EBITDA   Industry Average 14.03x   Company 5-year Average 20.41x   Click to enlarge Source: Seeking Alpha, GuruFocus, Khaveen Investments We used a comparable company valuation method to derive our target price for Amphenol.   Comparable Companies Analysis 2024F 2025F 2026F 2027F 2028F   Revenue Growth (%) 12.93% 12.22% 11.48% 10.71% 9.91%   Total Revenue ($ mln) 14,178 15,911 17,738 19,637 21,582   EBITDA Margin (%) 23.53% 23.53% 23.53% 23.53% 23.53%   EBITDA ($ mln) 3,336 3,744 4,174 4,621 5,078   Cash and Cash Equivalents ($ mln) 1,890 2,383 2,727 3,143 3,641   Total Debt ($ mln) 6,749 6,749 6,749 6,749 6,749   Historical EV/EBITDA 20.41x 20.41x 20.41x 20.41x 20.41x   Amphenol EV ($ mln) 90,127 93,222 96,615 100,094 103,655   Amphenol Implied Equity Value ($ mln) 85,268 88,855 92,593 96,488 100,547   Share Outstanding ('mln') 600.6 600.6 600.6 600.6 600.6   Target Price 141.97 147.94 154.17 160.65 167.41   Upside/Downside (%) 4.2% 4.2% 4.2% 4.2% 4.2%   Click to enlarge Source: Khaveen Investments  Based on the company’s 5-year EV/EBITDA ratio of 20.41x, we determined the company’s Enterprise Value in 2028F by multiplying it with our forecast EBITDA ($5,078 mln). Subsequently, we deducted debt and added cash to determine the Equity Value, which was then divided by the total shares outstanding (600.6 mln shares) to derive the target price of $167.41 in 2028F. Based on this price target, we prorated it to derive our 2024 price target of $141.97 with an upside of 4.2%, leading us to revise our rating to a Hold, which we believe is fair considering that Amphenol's share price has risen by 66% since our previous analysis in October 2023.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2438301743"}