The company is structured into three business segments:
Harsh Environment Solutions -28% of sales- :
This segment primarily includes connectors and cables designed to withstand extreme conditions in order to transmit data. These solutions are used in sectors such as automotive, aerospace, defense, industry, information technology and mobile networks.
Communications Solutions -39% of sales- :
This segment offers products that enable high-speed data transmission, wireless communication and network infrastructure. These products are used in fields such as automotive, communications, aerospace, defense, industry, information technology, mobile devices and mobile networks.
Interconnect and Sensor Systems -33% of sales- :
This segment specializes in interconnect and sensor systems. Power distribution systems ensure proper electricity routing, while sensors measure data such as temperature, pressure and position, which are crucial for the operation of automated systems. These solutions are used in sectors such as automotive, aerospace, defense, industry, information technology and mobile networks.

Amphenol stands out due to its market diversification, with no segment over-represented. The company also benefits from an extensive global presence, with sales in some 70 countries on six continents. All this mitigates the risks associated with dependence on a single market.

The geographical breakdown of sales is as follows: 39% in North America (of which 35% in the USA), 38% in Asia (of which 23% in China), 20% in Europe and 3% for the rest of the world.

Serial acquirer

Amphenol has succeeded in setting itself apart and gaining market share through a serial acquirer strategy. Over the past 10 years, the company has acquired more than 50 companies. In 2023 alone, the company acquired ten companies, increasing sales by $600 million. This year, the company will acquire Carlisle's CIT business for $2 billion, the company's biggest-ever transaction, which should add another $900 million in sales.

In an increasingly mature industry, growth through acquisitions has become essential. Amphenol has understood this, as its performance shows. Between 1990 and 2022, the connector industry posted an average annual growth rate of 5.1%, while the manufacturing sector recorded a rate of 11.2% - more than double!

The share of the top 10 companies in the industry has almost doubled in 40 years. Evidence of consolidation. Source: Bishop & Associates

Successfully identifying, acquiring and integrating companies while increasing margins is a major competitive advantage. This strategy not only strengthens a company's market position, but also diversifies its sources of revenue and enables it to plan for future growth, even in difficult market conditions. Amphenol is a shining example of this.

Source: Bishop & Associates

In just a few decades, Amphenol has established itself as a strong challenger to TE Connectivity, and has managed to maintain this position. Indeed, in the space of 20 years, the group has gained 10% market share. According to analysts' forecasts, it should even become number one in the years to come. This prospect partly justifies the company's high valuations relative to its competitors.

Financial

Amphenol has a market capitalization of $80 billion, with an estimated price-to-earnings ratio for 2024 of 36.6 times. Sales amount to $12.55 billion in 2023, down 1% in constant currencies and 3% organically (excluding currency and acquisition impacts) on the previous year. Operating margin reached 21.05%, a record after stagnating between 19.5% and 20.5% for a decade. Forecasts point to a continuation of this trend.

The decline in sales in 2023 is the result of lower sales in the Communications Solutions segment, due to weaker demand and the build-up of inventories in 2022. The industrial market has also shown a moderation in demand. But if we take a step back, we can see that over the last ten years, sales have grown at an average annual rate of 10%. Another positive aspect is that CAPEX has been maintained at less than 4% of sales over the same period.

The payout ratio is 44%. Amphenol bought back shares for a total of $3.7 billion, reducing the number of shares outstanding by just 3.3% in ten years, and paid out $2.8 billion in dividends. Net earnings per share (EPS) grew by 12%.

Although dividend yields are low, the company's strategy is focused on acquisitions, with $7 billion spent in this area over the past ten years.

The ratio of long-term debt to free cash flow (LT Debt / FCF To Firm), i.e. the company could repay all its debt ($4.2 billion cumulatively in 2023) without drawing on its cash, has fallen from 3.6 to 1.8 in 10 years. Amphenol also has $1.5 billion in liquid assets. This improvement reflects better financial management, increased repayment capacity and strengthened financial health.

Corporate culture

The current CEO, Adam Norwitt, joined Amphenol in 1998 and took the helm of the company in 2008. In an interview, Norwitt explains the company's decentralized culture. He explains that the companies acquired retain complete operational autonomy. This flexibility would enable teams in the field to make rapid decisions without the need for intervention from head office.

The Group's objective is to bring rigorous cost management to bear, while leveraging the Group's size and strategy to align the new businesses with margin standards.

Over the past 20 years, Amphenol's total return has risen by 22.9% a year, compared with 10.2% for the S&P 500.

For 2024, Amphenol is forecasting a record year, bolstered by its $2 billion acquisition. The forecasts were confirmed at the last presentation to investors. Operating margin will reach a record 21.05% and sales will grow by 16%. The years ahead look promising, with pricing power, an effective acquisition strategy and sales set to explode over the next three years. Earnings per share (EPS) are also expected to rise sharply. However, it should be noted that the company's current valuation is high, which could temper investor enthusiasm in the short term.