Sensata's Shift To Electrification Has Hurdles, Analyst Cites $16M-$20M In Restructuring Costs

Truist Securities analyst William Stein reiterated a Hold rating on Sensata Technologies Holding Plc ST, lowering the price target to $43 from $48.

The analyst writes ST is in the middle of a transition from manufacturing a broad array of sensors, mainly for the ICE portion of the automotive market, to expanding its exposure to the electrification theme while developing a software/services business. 

Such transitions are more commonly conducted in private markets, and ST's execution as a public company makes it challenging for the stock to work, Stein notes.

Management cited the scaling and mix of the electrification business as a main headwind to margins, with new products expected to become accretive over three years, the analyst adds. 

The company announced a cost saving initiative to realign with weaker than expected demand in the near term. 

ST expects the plan to result in $16 million-$20 million restructuring charges in Q3 but to save $40 million-$50 million per year in the future.

The company has initiated a Q4 guidance that is below consensus, with sales expected to be 2.4% lower and EPS of $0.94, 2 cents below the consensus. 

ST noted reduced charging-related orders in the past quarter as charging networks prepared to adopt North American Charging Standard. 

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Based on the above, the analyst lowered the FY24 EPS estimate to $3.90 from $3.96. 

Despite the challenges, ST has established medium-term goals of 8% revenue CAGR and 16.5% EPS CAGR. These land CY26 targets at $5.15 billion sales and $5.90 EPS and include an expectation that OPM expands from 19.4% in the last qtr to 21%-23%. 

Price Action: ST shares are trading lower by 2.54% to $36.87 on the last check Thursday.