The electronic connector industry isn't very sexy. Once you get past the male-female plug thing, it's pretty boring. But Amphenol (NYSE: APH) seems to have figured out how to make it pay: take a bigger cut of each connection.
The $35 billion global interconnect products and systems industry is highly fragmented. According to Amphenol's own data, the 10 largest companies have a combined market share of just 49%. With that in mind, let's compare Amphenol with one of its largest direct competitors, Molex (Nasdaq: MOLX).
Amphenol and Molex could be twins. They both specialize in electronic interconnect assemblies, unlike Tyco Electronics (NYSE: TEL), which in addition to connectors, sells network infrastructure and undersea telecommunications systems. Amphenol and Molex have similar revenues. They're globally based. And they sell into many of the same markets, including automobiles, computers, and cell phones. But check out some key earnings numbers:
|
Company |
Revenue |
Operating Income |
Operating Margin |
Free Cash Flow |
|---|---|---|---|---|
|
Amphenol |
$3,554 |
$700 |
19.7% |
$317 |
|
Molex |
$3,403 |
$347 |
10.2% |
$22 |
All dollar amounts are in millions, trailing 12 months. Source: WSJ Company Research.
The fundamental difference in these companies should have just hit you over the head. Amphenol is getting almost twice the margin on its product line, and that spills over as free cash flow. While there has been some recent concern over Amphenol's margins that are worth watching, clearly the company has positioned itself in product lines where they have some pricing power. The only thing Molex's weak cash flow is generating is awkward comparisons.
You're probably reading this because you're interested in finding good companies to invest in. With that in mind, how do the two companies compare from Wall Street's point of view?
|
Company |
Book Value |
Market Cap |
Price to Book |
Price to Earnings |
Stock Price Growth, Last 5 Years |
|---|---|---|---|---|---|
|
Amphenol |
$2,321 |
$9,934 |
4.3 |
20.2 |
18.6% per year |
|
Molex |
$2,191 |
$4,323 |
2.1 |
20.3 |
(2.6%) per year |
All dollar amounts are in millions. Source: WSJ Company Research.
Kind of says it all, doesn't it? If long-term price appreciation is your main investment strategy, the winner here should be obvious. Even with a recession thrown in, Amphenol is turning boring into cash and cash into market capitalization.
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