Electrification And IoT Will Drive Advanced Connector Demand

Key Takeaways

• Deeply localized manufacturing and embedded design centers give TE Connectivity notable supply chain resilience and operational edge, supporting sustained margin expansion amid global trade challenges.
  
• Strong positioning in AI, industrial automation, EVs, and niche high-growth sectors enables accelerating revenue growth, high-margin mix, and durable market leadership as digital transformation matures.
  
• Reliance on global and cyclical markets, regulatory pressures, and rising competition threaten TE Connectivity's margins and earnings growth in the face of ongoing industry and geopolitical challenges.

Catalysts

Manufactures and sells connectivity and sensor solutions in Europe, the Middle East, Africa, the Asia–Pacific, and the Americas.

• Analyst consensus recognizes TE Connectivity's local manufacturing strategy as an operational advantage, but the company's deep localization-over 70% manufacturing within customer regions and embedded local design centers-uniquely positions it to capture incremental market share and offer unmatched supply chain resilience, setting up sustained margin expansion even as competitors struggle with new trade and tariff shocks.
  
• Analysts broadly agree that TE's exposure to AI-related applications will drive strong industrial segment growth, but recent order surges-up 150% quarter-over-quarter with real program ramps across hyperscalers-signal that AI revenues could reach the $1 billion mark by 2026, several quarters ahead of consensus, providing an even sharper acceleration in top-line growth and high-margin mix.
  
• TE Connectivity's market leadership in connectors and sensors for electrified vehicles, combined with its dominant Asian auto market presence and expertise in software-defined vehicle architectures, is poised to outperform as global EV and ADAS adoption accelerates, driving both revenue outperformance and enriched content per vehicle, even as Western markets remain cyclical.
  
• The rapid proliferation of industrial IoT, factory automation, and connected infrastructure globally is beginning to inflect, evidenced by recent broad-based order rebounds in automation and connected living; as digital transformation spending rises, TE's unique positioning should enable compounding revenue and margin gains well above GDP and sector averages.
  
• Sustained innovation in ruggedized, high-performance solutions for aerospace, defense, energy grid modernization, and space-where TE is already benefiting from multiplying demand for specialized connectors-will allow for premium pricing and market share capture in nascent, high-growth verticals, supporting long-term margin expansion and resilience in earnings through economic cycles.

TE Connectivity Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on TE Connectivity compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming TE Connectivity's revenue will grow by 9.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.7% today to 15.9% in 3 years time.
• The bullish analysts expect earnings to reach $3.4 billion (and earnings per share of $11.9) by about July 2028, up from $1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, down from 37.4x today. This future PE is lower than the current PE for the US Electronic industry at 24.1x.
• Analysts expect the number of shares outstanding to decline by 2.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.81%, as per the Simply Wall St company report.

TE Connectivity Future Earnings Per Share Growth

Risks

• Geopolitical fragmentation and protectionism remain a significant risk for TE Connectivity, as 75 percent of its sales are generated outside the U.S. and new or escalating trade barriers or tariffs could disrupt regional supply chains and customer relationships, raising costs and potentially reducing international revenue and profit margins over time.
  
• TE's heavy reliance on cyclical sectors, particularly automotive and industrial, exposes it to volatility and downturns; the company noted ongoing declines in Western auto markets and expects global auto production to decline this year, which could depress both sales and earnings in those segments during industry slowdowns.
  
• Although TE has localized a large share of its manufacturing, tightening environmental regulations and evolving e-waste standards worldwide could demand costly compliance efforts and possible redesigns of products, increasing expense levels and placing downward pressure on company-wide net margins.
  
• The risk of intensifying competition from low-cost Asian manufacturers remains relevant, especially given that the company's sales growth is currently concentrated in Asia; pressure from these competitors may force TE to reduce prices to defend market share, leading to margin compression and potential market share losses that could negatively affect long-term earnings growth.
  
• Customer consolidation and uneven demand in core sectors, such as automotive and industrial, could further compress margins as larger customers gain bargaining power and demand more favorable pricing or supply terms, directly impacting TE's net margins and making sustained earnings improvement more challenging.

Valuation

• The assumed bullish price target for TE Connectivity is $214.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of TE Connectivity's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $214.0, and the most bearish reporting a price target of just $140.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $21.3 billion, earnings will come to $3.4 billion, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 8.8%.
• Given the current share price of $175.44, the bullish analyst price target of $214.0 is 18.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.