Amphenol Q3: Robust Quarter For IT Datacom

seekingalpha11-19

Amphenol Corporation achieved 15% organic revenue growth and 28% adjusted EPS growth, driven by strong performance in the IT Datacom market, reinforcing a “Buy” rating with an $85 target price.The IT ...

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href=https://seekingalpha.com/article/4738461-amphenol-q3-robust-quarter-for-it-datacom><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Amphenol Corporation achieved 15% organic revenue growth and 28% adjusted EPS growth, driven by strong performance in the IT Datacom market, reinforcing a “Buy” rating with an $85 target price.The IT ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738461-amphenol-q3-robust-quarter-for-it-datacom\">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":"SG9999018857.SGD","symbol_name":"United Global Quality Growth Fd Cl Acc 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revenue growth and 28% adjusted EPS growth, driven by strong performance in the IT Datacom market, reinforcing a “Buy” rating with an $85 target price.The IT Datacom segment, accounting for 25% of total revenue, grew 59% organically year-over-year, fueled by high demand for AI computing and data center interconnect products.Amphenol's strategic acquisitions, including Lütze Europe, and robust market positions in defense and harsh environment markets, support sustained growth and margin expansion.Despite high CAPEX levels, strategic investments in IT Datacom and defense markets are expected to capitalize on rapid growth, justifying the “Buy” rating and $85 target price.   AscentXmedia/iStock via Getty Images  In my previous “Buy” rating on Amphenol Corporation (NYSE:APH) in September 2024, I highlighted their acquisition of the Mobile Networks business. Amphenol delivered an impressive 15% organic revenue growth and 28% adjusted EPS growth in Q3 FY24, beating the market expectations, due to their strong performance in the IT Datacom market. I reiterate a “Buy” rating with a one-year target price of $85 per share. Robust Quarter for IT Datacom Amphenol released its Q3 result on October 23rd, reporting 15% organic revenue growth and 28% adjusted EPS growth. The standout highlight for the quarter was the strong growth in the IT Datacom end-market.   Amphenol Quarterly Results The IT Datacom end-market accounts for 25% of total revenue and grew 59% organically year-over-year. During the earnings call, the management attributed to strong demands for their products used in artificial intelligence applications, as well as the core IT Datacom infrastructure products. For FY24, the company is guiding for more than 50% year-over-year growth in this segment, which is remarkable. I believe Amphenol could sustain a fast growth in the IT Datacom end-market in the near future. The rapid expansion of AI computing has created strong market demands for data center interconnect products. The high-speed fiber interconnect products are mission-critical to building data center network infrastructures. As indicated in my previous article, Amphenol offers high-end, high-speed interconnect products and holds leading market positions. Therefore, I think Amphenol is well positioned to capitalize on the growth in this sector. Outlook and Valuation Amphenol is guiding for 18%-19% revenue growth and 21%-22% adjusted EPS growth for FY24. Indeed, it marks a strong growth year for Amphenol, fueled by the booming IT Datacom and the benefits of previous acquisitions. As indicated in my previous article, M&A has been a key growth driver for Amphenol recently. In early October, Amphenol completed their previously announced acquisition of Lütze Europe, adding another $100 million in annual revenue from the harsh environment cable and cable assembly market. I believe the acquisition aligns with Amphenol’s long-term acquisition strategy, and could enhance Amphenol’s market position in the harsh environment market. I am considering the following factors for their near-term growth:  Grand View Research forecasts that the global data center interconnect market will grow at a CAGR of 13.1% from 2025 to 2030, driven by strong demands for AI computing. The strong demand for data center interconnect products could provide a long-term tailwind for Amphenol. The defense market represents around 11% of Amphenol’s total sales, and Amphenol holds a strong market position in some key areas including space, aircraft and avionics, communications and ground vehicle applications. I anticipate Amphenol can deliver high-single-digit revenue growth in the defense market, comprising 6% market growth and an additional 2%-3% market share gains. I estimate Amphenol will deliver 9% organic revenue growth, driven by 2%-3% growth from IT Datacom, 1% growth from defense market, 4% growth from traditional interconnect market, and 1%-2% growth from all other fast-growing markets such as automotive and IoT etc. I assume Amphenol will allocate 7.7% of total revenue toward M&A, contributing 4% growth to the topline. As such, the total revenue growth is forecasted to be 13% in the DCF model. I continue to forecast the company to deliver 30bps annual margin expansion, driven by 10bps from gross profits, 10bps from R&D operating leverage and 10bps from reduction in SG&A. I estimate the total operating expenses will grow by 12% annually, resulting in 30bps operating margin expansion.  I calculate the future free cash flow from equity (FEFE) as follows:   Amphenol DCF The cost of equity is estimated to be 11.4% assuming: risk-free rate 3.6%; beta 1.3; equity risk premium 6%. Discounting all the future FCFE to the year of FY25, the one-year target price is calculated to be $85 per share, as per my estimates. Key Risks During Q3, Amphenol spent $230 million in capital expenditure, a significant increase from $74.7 million in Q3 FY23. During the earnings call, the management indicated that CAPEX levels are expected to remain elevated in Q4 to support their growth in IT datacom and defense markets, driven by strong end-market demand. The high CAPEX spending will pose challenges to Amphenol’s free cash flow growth; however, I believe the capital investments make strategic sense to capitalize on the rapid growth in the IT Datacom and defense end-markets. End Note  I think Amphenol is well positioned to capitalize on the rapid growth of the data center interconnect market. I reiterate a “Buy” rating with a one-year target price of $85 per share.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","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":"4.29.2","shortVersion":"4.29.2","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/2484963306"}