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Can Amphenol Break the Inline Trend in '17 Despite Risks?

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On Jan 5, Zacks Investment Research updated the research report on diversified electronics manufacturer Amphenol CorporationAPH .

Amphenol designs and manufactures connectors and interconnecting systems that are used primarily to transmit electrical and optical signals for a wide range of sophisticated electronic applications.

The stock almost performed in line with the Zacks categorized Electronics-Connectors industry last year, with an average return of 38.3% compared with 37.5% for the latter. However, Amphenol's performance in 2017 is likely to be inhibited by continued macroeconomic challenges across the globe.

The company conducts businesses in major foreign currencies due to its worldwide operations. Non-U.S. markets usually account for the lion's share of its net sales. Unfavorable movement in foreign currency exchange rates often adversely impact sales, thereby affecting its long-term growth to some extent. Amphenol attempts to minimize currency exposure risks by manufacturing its products in the same country or region in which they are sold, thereby generating revenues and incurring expenses in the same currency. Despite these attempts, the company is susceptible to volatility in foreign exchanges, which undermines its growth potential to some extent.

Furthermore, bulk of Amphenol's revenues comes from sales to the communications industry, demand for which is subject to rapid technological change. In addition, these markets are dominated by several large manufacturers and operators who exert significant price pressure on Amphenol. Increasing cost of raw materials is also a matter of concern and is likely to be an additional drag on the profitability of this Zacks Rank #4 (Sell) stock.

Amphenol has a Value Growth Momentum score ( VGM score ) of 'D'. Our research shows that stocks with a VGM score of 'A' or 'B', when combined a Zacks Rank #1 (Strong Buy) or #2 (Buy), offer the best investment opportunities for investors. However, investors should better avoid stocks with a Zacks Rank #4 or #5 (Strong Sell), even if it has a Style Score of an 'A' or 'B'.

Despite the headwinds, Amphenol remains encouraged by its expanding presence in the fast-growing commercial aerospace market and is well positioned to capitalize on the proliferation of electronics content on next- generation planes. These advanced electronic systems also require new higher technology interconnect solutions to enhance fuel efficiency and improve passenger experience, all of which create excellent opportunities for the company.

At the same time, Amphenol's top-line growth is benefiting from improved end-market demand, new product rollouts, and market share gains. Demand continues to be strong in automotive industrial and mobile networks and military markets. The diversification in end markets with a consistent focus on technology innovation and customer support through all phases of the economic cycle enabled Amphenol to post strong results previously. Whether it can replicate this success story in 2017 remains to be seen.

Some better-ranked stocks in the industry include ServiceSource International, Inc. SREV , Symantec Corporation SYMC and Xplore Technologies Corp. XPLR , each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

ServiceSource has beaten estimates in all the trailing four quarters for an average earnings surprise of 58.3%.

Symantec has a long-term earnings growth expectation of 11.1% and has beaten estimates twice in the trailing four quarters for an average positive earnings surprise of 5.4%.

Xplore Technologies has a long-term earnings growth expectation of 10%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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