The connector segment within the electronic components sector is expected to benefit from increased automation in the automotive and industrial spaces as companies move to cut costs over time, says Michael J. Wherley, an Analyst at Janney Montgomery Scott LLC.
“The main driver for the connectors industry is increasing electrification of pretty much everything. So whether that’s in automotive, with all the different devices that go into cars today,” he said, “whether its in industrial automation, where the price in labor has been increasing pretty dramatically in large chunk in China over the last five years.”
Wherley favors Amphenol Corporation (APH) due to its decentralized model with 75 business units that operate independently, which is different than most large, multinational companies. He also likes Amphenol because of its 16% compound annual growth in the past decade, versus the top 10 companies in the connectors industry at 6.3%.
“As it all grows, the question is ‘Can they maintain this performance even if they double in size in the next five years?’,” Wherley said. “But we believe that they have a model that works and we believe, at least for the near to midterm, that this model works very well, and there’s no reason to doubt that they can’t keep working.”