TE Connectivity Posts Solid Q4 Despite Lower Automotive Production; Maintain $120 FVE

Narrow-moat TE Connectivity closed out a stellar fiscal 2021 with a fourth quarter matching our expectations, and we maintain our fair value estimate of $120 per share. TE managed to meet its top line guidance despite supply-constrained automotive revenue as strong spending from industrial and cloud customers picked up the slack. We expect supply constraints to continue hampering the automotive end market—TE’s largest—in the short term, but think the firm’s ability to outperform its underlying markets with content growth will alleviate the effect on TE’s financials. We also forecast the rest of TE’s end markets to grow in fiscal 2022 as it digests the impressive backlog it built up in fiscal 2021. We think market uncertainty about automotive production challenges sent shares down 3% following the release, but our long-term view for content growth from increasing electrification and connectivity to spur strong outperformance across TE’s end markets is unchanged. Nevertheless, we continue to view shares as overvalued.