Assessing TE Connectivity (TEL) Valuation After Dividend Hike And Expanded Buyback Program

TE Connectivity (TEL) highlighted capital returns after its board approved a 10% increase in the quarterly dividend to US$0.78 per share and added US$3.0b to its share repurchase authorization.

See our latest analysis for TE Connectivity.

Even with the new dividend and expanded US$3.0b buyback plan, TE Connectivity’s short term share price momentum has cooled, with a 30 day share price return of -12.37% and year to date share price return of -15.17%, while the 1 year total shareholder return of 42.11% suggests longer term holders have still seen strong gains.

If this capital return news has you thinking about other ways to put your money to work, it could be worth scanning 23 power grid technology and infrastructure stocks as another source of potential ideas in the wider electrification theme.

With TE Connectivity trading at US$197.84, annual revenue of US$18,095.0m, net income of US$2,066.0m and a value score of 4, plus a sizable discount to analyst targets, is there genuine upside here or is the market already pricing in future growth?

Most Popular Narrative: 27.3% Undervalued

The most followed valuation story for TE Connectivity puts fair value at $272.00, well above the recent $197.84 close, and builds that gap on specific growth and margin assumptions rather than sentiment alone.

Broad-based order growth, especially in Industrial and Energy markets, coupled with positive early signs of recovery in factory automation, creates a durable foundation for double-digit EPS growth and high free cash flow conversion (>100%), further strengthening the company's capacity to invest in secular tailwinds or execute value-accretive acquisitions.

Read the complete narrative.

Curious what sits behind that double digit earnings path and rich cash conversion claim? The narrative focuses on potential future margin gains, revenue compounding and a premium earnings multiple that is more often associated with market leaders in faster growing pockets of tech. If you want to see exactly how those building blocks support a fair value well above today’s price, the full narrative lays out the numbers in black and white.

Result: Fair Value of $272.00 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, those assumptions could be challenged if demand in AI, energy or Asian transportation slows, or if acquisitions and factory footprint changes prove harder to integrate than expected.

Find out about the key risks to this TE Connectivity narrative.

Another View: Cash Flows Paint A Different Picture

While the popular narrative sees TE Connectivity as 27.3% undervalued at a fair value of $272.00, our DCF model points in the other direction, with an estimate of $173.89 versus the current $197.84 share price. This implies the stock screens as overvalued on cash flows rather than cheap. So which story do you think is closer to reality?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TE Connectivity for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With one story pointing to upside and another flagging a richer price, it makes sense to check the numbers yourself and move quickly while opinions are split. To see the balance of potential upside and the issues that could hold the stock back, take a look at 6 key rewards and 1 important warning sign.

Looking for more investment ideas?

If you are weighing up the TE Connectivity story, do not stop here, you could miss other opportunities that suit your goals and risk comfort.

• Spot potential value opportunities early by checking companies that screen as high quality and potentially overlooked in our screener containing 25 high quality undiscovered gems.
• Strengthen the quality of your watchlist by focusing on companies that pass strict balance sheet checks using the solid balance sheet and fundamentals stocks screener (41 results).
• Reduce portfolio shocks by scanning for companies that consistently show lower overall risk profiles through the 68 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com