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Should TE Connectivity (TEL) be in Your Portfolio Now?

We have issued an updated report on TE Connectivity Ltd.TEL on Sep 25, 2015. The company has been aiming at strengthening its leading position in the connectivity and sensor business.

Last month, the company completed the sale of the Broadband Network Solutions ('BNS') business, which is a part of its Network Solutions division, to CommScope Holding Company, Inc. COMM for $3.0 billion. TE Connectivity projects to use majority of the sale proceeds for buying back its common shares. Thus, strategically, the company will be successful in making the deal neutral to adjusted earnings per share in a one-year span. As a matter of fact, the sold BNS business did not include TE Connectivity's Subsea Communications or Data Communications businesses.

With the conclusion of the sale, TE Connectivity now derives 90% of its revenues from the thriving connectivity and sensor markets. Also, the company reaps over 80% from harsh environment applications and has garnered over $1.6 billion in revenues in the last three years from it. Hence, we view the divestiture as a strategic fit for the company.

Moreover, TE Connectivity's efforts to raise shareholders wealth through share repurchases and dividends are commendable. Apart from rewarding its investors via sale proceeds, the company's board of directors proposed a yearly dividend increase of around 14% to $1.32 for fiscal 2015. If implemented, this will mark the fifth consecutive year of double-digit dividend increase for the company. Such initiatives boost investors' confidence in the stock.

However, TE Connectivity has been suffering from sluggishness in the Chinese market and supply chain adjustments in several industrial markets. Also, TE Connectivity is majorly impacted by foreign currency fluctuations, with strengthening of the U.S. dollar acting as headwinds. Additionally, high restructuring expenses related to TE Connectivity's ongoing restructuring and acquisition activities has been bothering its financials. The company expects this to continue going forward too.

Talking about estimate revisions, analysts seem to have kept mum on this Zacks Rank #3 (Hold) stock, considering the ongoing broader market concerns. Hence, over the last 7 days, the Zacks Consensus Estimate for 2015 and 2016 earnings per share remained flat at $3.63 and $4.14, respectively.

A couple of better-ranked stocks in the elec-misc components industry are Mobileye N.V. MBLY and Active Power Inc. ACPW . Both stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ACTIVE POWER (ACPW): Free Stock Analysis Report

TE CONNECT-LTD (TEL): Free Stock Analysis Report

MOBILEYE NV (MBLY): Free Stock Analysis Report

COMMSCOPE HLDG (COMM): Free Stock Analysis Report

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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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