Amphenol's Healthy Demand Schedule Plagued By Currency Woes

On Jun 21, we updated the research report on diversified electronics manufacturer, Amphenol Corporation (NYSE:APH) .

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 the automotive, industrial, 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 the company to post solid results over the past few quarters. A sustained drive for geographic and market diversification further helped Amphenol to increase its customer base and develop new applications.

In addition, 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 in 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.

In the last three months, Amphenol’s shares have performed almost in line with the Zacks categorized Electronics-Connectors industry with an average return of 5.6% compared with a 5.4% gain for the latter. In order to fuel growth, Amphenol aims to make acquisitions on a global basis in the high-growth segments that have complementary capabilities from a product, customer and/or geographic standpoint. The acquisition of Phitek Systems Limited, a New Zealand-based leading manufacturer of in-flight entertainment interconnect products for the commercial aerospace industry, is likely to strengthen its global foothold and enhance its product offering in strategic markets.

However, Amphenol conducts businesses in major foreign currencies due to its worldwide operations and non-U.S. markets which 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 products in the same country or region where they are sold. Despite these attempts, the company is susceptible to volatility in foreign exchanges, which undermines its growth potential to some extent.

To add to the woes, bulk of the company’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. Furthermore, increasing cost of raw materials is also a matter of concern and is likely to be an additional drag on its profitability.

Nevertheless, we remain impressed with the holistic growth impetus of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Axcelis Technologies, Inc. (NASDAQ:ACLS) , Brooks Automation, Inc. (NASDAQ:BRKS) and Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Axcelis has a long-term earnings growth expectation of 20%. It topped estimates in each of the trailing four quarters with a stellar average earnings surprise of 135.8%.

Brooks Automation topped estimates in each of the trailing four quarters with an average earnings surprise of 24.1%.

Kulicke and Soffa has a long-term earnings growth expectation of 13.5%. It topped estimates in each of the trailing four quarters with an average earnings surprise of 38.6%.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>