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There is no AI slowdown, as far as TE Connectivity is concerned. Investors, however, haven’t got the message. Shares are down in early trading, despite a strong earnings report.
The maker of electrical components reported better-than-expected fiscal third-quarter earnings on Wednesday morning and provided solid guidance.
For the quarter, TE announced earnings per share of $2.94 from sales of $5.2 billion. Wall Street was looking for $2.85 and $5 billion, respectively. A year ago, TE reported earnings per share of $2.27 from sales of $4.5 billion.
The company’s data center business topped $800 million, up $100 million quarter over quarter and up 32% year over year.
Orders were $5.7 billion, up $1.2 billion year over year. “Order momentum gives confidence not only near term, but… building on these trends into next year,” said CEO Terrence Curtin, adding that growth was pickup un in all business, including industrial and heavy-duty truck end markets.
For the fiscal fourth quarter, TE guided to earnings per share of $3.05 from sales of $5.3 billion. Wall Street currently projects $2.97 and $5.2 billion, respectively.
It’s a solid quarter. And TE stock was up 2% at $213.10 in premarket trading. But gains quickly faded, leaving shares at $195.31, down 6.6% in early trading. The S&P 500 was off 0.1% and the Dow Jones Industrial Average was up 0.1% in early trading.
Solid quarters don’t always lead to stock gains. Coming into Wednesday trading, TE Connectivity stock was down about 8% year-to-date.
Shares fell 9.1% after the company reported fiscal second-quarter earnings in April. TE beat earnings expectations and provided solid guidance, just like this quarter. Jefferies analyst Stephen Volkmann called results “solid” and reiterated his Buy rating after earnings. Baird analyst Luke Junk called the reaction “harsh.”
Still, investors were nervous then. They look nervous now. AI is the reason. Any signs of decelerating growth cause consternation. TE’s data center business is growing slower than it was, but it is growing off a much larger base.
Junk wrote Wednesday that data center growth was as expected. Volkmann wrote that the data center business is expected to grow nicely in the coming quarter. Still, investors are nervous.
TE also announced the acquisition of Astrodyne TDI, “a leading provider of advanced power management and filtering solutions.” Acquisitions can make investors nervous, but the price is $1.4 billion, which is small relative to TE’s market value of roughly $60 billion.
Valuation doesn’t seem to be an issue. Ahead of fiscal second-quarter earnings, TE stock was trading for about 21 times earnings expected over the coming 12 months, a discount to the S&P 500 multiple of about 22 times.
Now, TE trades for about 17 times earnings. Lower valuations can take some of the risk out of earnings reports. Investors will have to see if that’s true for TE in the coming days.
Write to Al Root at [email protected]
