J.P Morgan Comments On Tyco Electronics Earnings Beat

Tyco Electronics TEL FQ1 results were solidly above J.P Morgan forecasts with revenue slightly above, and margins more substantially above its expectations. EPS of $0.73 beat JPM's estimate by $0.05 mainly due to a stronger gross margin facilitated by leverage from healthy Automotive connector growth. However, FQ2 margin guidance is weak pushing the EPS guidance range below its prior forecast. FQ1 results were better than JPM expected primarily driven by higher vehicle production of 18.2M units vs. its 17.4M forecast. Revenue of $3.20B exceeded the forecast by $43M and was at the high end of prior $3.05-3.15B guidance excluding at $51M contribution from ADC. EPS of $0.73, with no ADC contribution, was above JPM's $0.68 and prior $0.66-0.70 guidance. J.P Morgan continues to rate TEL Underweight as it believes better than average connector market growth from Automotive, 36% of revenue, may be offset by drags from the Consumer Devices, Computer, SubComm, Enterprise Networks, and Service Provider businesses which in aggregate represent 30% of revenue pro forma for ADC. JPM sees lower potential for relative outperformance and believe shares may lack a catalyst to drive valuation multiple expansion. TEL closed Thursday at $36.02