Zacks_Analysts' Blog : Neutral on Amphenol - Analyst Blog

We continue to maintain our Neutral recommendation on Amphenol Corporation (APH).

Amphenol is optimistic about the accelerating proliferation of new electronics in all its end markets, which the company expects will propel demand in the coming quarters. We remain impressed by Amphenol’s operational execution, leading to solid improvement in margins when compared to peers such as Molex (MOLX) and Tyco Electronics (TEL), along with strong cash flow generation.

Although third quarter results beat expectations, management continued to be cautious given the turbulent economic environment.

Management stated that global markets have been impacted by a higher level of uncertainty surrounding fiscal and budgetary issues in most developed economies. As a result, Amphenol continues to see increased levels of caution from many of its customers, which have impacted demand in most markets. Additionally, strength in the Mobile Devices market is not expected to continue in the fourth quarter.

Amphenol incurred damage at its Sidney, New York manufacturing facility due to severe and sudden flooding in New York State during the period September 7 through September 9, 2011. Amphenol recorded a charge of $13 million or $0.05 per share for property-related damage in the third quarter, as well as cleanup and repair efforts, net of expected insurance recoveries.

Amphenol expects to record an additional charge of approximately $7 million or $0.03 per share as one-time expenses for the remaining cleanup and repair efforts. In addition, the Sidney facility had limited manufacturing and sales activity in September and is ramping up to full production levels during October. This reduced sales by approximately $11 million in the third quarter and is also expected to reduce sales by approximately $7 million in the fourth quarter.

Amphenol projects sales between $920 million and $940 million for the fourth quarter.  Earnings per share (excluding onetime items) are forecast between $0.69 and $0.70.

Amphenol now projects revenues between $3.975 billion and $4.005 billion for fiscal 2011, compared to the previous range of $3,955 million to $4,000 million.  EPS is expected between $3.13 and $3.17, compared to the previous estimate of $3.05 – $3.11. 

Earnings estimates for fiscal 2011 have declined slightly of late. Gross margin has been under pressure in the last few quarters due to higher commodity costs. Furthermore, demand remains uncertain for most end markets, given the macroeconomic volatility.

We maintain our Neutral recommendation. Our recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold.