TEL TE Connectivity
Solid connector franchise with switching costs, but 11% implied growth is too rich.
The business
TE Connectivity designs and manufactures connectors and sensors primarily for automotive, industrial, and data communications applications. Revenue comes from selling engineered components to OEMs and distributors, often after winning multi-year design-in cycles.
Quality gate · 75/100
Moat & management
| Moat | narrow moat |
| Source | switching costs |
| Trajectory | stable |
| Management | adequate |
Once a connector is designed into a vehicle or industrial system, switching costs are high due to re-certification, reliability risk, and cost of redesign. However, connectors are not deeply differentiated at the low end and ROIC of 11.5% reflects a solid but not dominant franchise facing real competition.
Share count is shrinking 2.5% annually and leverage is sensible at 0.93x net debt/EBITDA. FCF conversion is excellent at 108%, though the capital allocation score is the weakest quality component, suggesting some mixed M&A or reinvestment outcomes.
Owner-earnings inputs
| Owner earnings (TTM) | 3.02B |
| Owner-earnings yield | 4.8% |
| Free-cash-flow yield | 5.3% |
| Growth used (normalized) | 6.0% |
| Market-implied growth (reverse DCF) | 11.1% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.9% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 3.20B | 6.0% | 2.91B |
| 2 | 3.38B | 5.7% | 2.80B |
| 3 | 3.56B | 5.3% | 2.68B |
| 4 | 3.74B | 5.0% | 2.56B |
| 5 | 3.91B | 4.7% | 2.44B |
| 6 | 4.08B | 4.3% | 2.32B |
| 7 | 4.24B | 4.0% | 2.19B |
| 8 | 4.40B | 3.7% | 2.07B |
| 9 | 4.55B | 3.3% | 1.95B |
| 10 | 4.68B | 3.0% | 1.82B |
Key risks
- cyclicality in automotive and industrial end markets could compress earnings in downturns
- EV transition slowdown or technology shifts could alter connector content per vehicle assumptions
- Asian competitors eroding margins on commoditized connector categories
Catalysts
- rising electrical content per vehicle from EV adoption and automation
- data center and AI infrastructure buildout driving higher-margin connector demand
- continued share buybacks at reasonable valuations
Recent news
score · 8 articles
- TE Connectivity (TEL) Stock Could Be A Bargain At Today’s Price
- TE Connectivity (TEL) Could Be 12% Undervalued As Growth And Cash Flow Stay In Focus
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⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~11%/yr owner-earnings growth over 10y (reverse DCF); model credits 6%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.