Emerging markets are growing hungrier for electronic components. Their economic development is resulting in more factory automation, infrastructure buildout, increased demand for electronic devices and a growing interest in greener technologies, all of which require electronic components, says Amitabh Passi, an Analyst at UBS Investment Bank.
“Many of these are the key underlying trends that are fairly critical to the uptake of the user connectors and components. And as that content goes up, it benefits the distributors. It also benefits the EMS guys who are actually manufacturing a lot of this equipment,” Passi said.
TE Connectivity (TEL) is one of Passi’s favorite names in electronic components. He says TEL is the largest connector manufacturer, with about 20% market share, and the company is improving its fundamentals and should benefit from recovering automotive demand.
“We foresee double-digit EPS growth over the next three to five years, free cash flow generation that’s $1 billion-plus per year, and it’s currently supporting about 8% to 9% free cash flow yield. And [TE Connectivity is] a company that’s trading at about 10 to 11 times earnings and about one times sales,” Passi said.
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