Sensata Technologies (NYSE:ST) Surprises With Q4 Sales But Quarterly Guidance Underwhelms

Jabin Bastian /
2022/02/01 6:18 am EST
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Sensor manufacturer Sensata Technology (NYSE:ST) announced better-than-expected results in the Q4 FY2021 quarter, with revenue up 3.1% year on year to $934.5 million. However, guidance for the next quarter was less impressive, coming in at $955 million at the midpoint, being 1.29% below analyst estimates. Sensata Technologies made a GAAP profit of $111.9 million, down on its profit of $121.6 million, in the same quarter last year.

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Sensata Technologies (ST) Q4 FY2021 Highlights:

  • Revenue: $934.5 million vs analyst estimates of $918.6 million (1.73% beat)
  • EPS (non-GAAP): $0.87 vs analyst estimates of $0.81 (8.05% beat)
  • Revenue guidance for Q1 2022 is $955 million at the midpoint, below analyst estimates of $967.4 million
  • Management's revenue guidance for upcoming financial year 2022 is $4.2 billion at the midpoint, predicting 9.92% growth (vs 8.95% in FY2021)
  • Free cash flow of $116.9 million, up 32.1% from previous quarter
  • Inventory Days Outstanding: 86, up from 80 previous quarter
  • Gross Margin (GAAP): 33.6%, down from 34.5% same quarter last year

"Fourth quarter results were stronger than expected. Sensata's revenue growth outpaced markets by 800 basis points offsetting meaningful declines in automotive production versus the prior-year quarter,” said Jeff Cote, CEO and President of Sensata.

Originally a temperature sensor control maker and part of Texas Instruments for 60 years, before eventually being spun out, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Sensata Technologies's revenue growth over the last three years has been unimpressive, averaging 5.31% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $906.4 million to $934.5 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Sensata Technologies Total Revenue

While Sensata Technologies beat analysts' revenue estimates, this was a very slow quarter with just 3.1% revenue growth. This marks 5 straight quarters of revenue growth, implying we are mid-cycle for Sensata Technologies, as a typical upcycle tends to last 8-10 quarters.

Sensata Technologies is guiding for revenue to grow 1.32% YoY next quarter, and Wall St analysts are estimating growth 7.89% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Sensata Technologies Inventory Days Outstanding

This quarter, Sensata Technologies’s inventory days came in at 86, 8 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Sensata Technologies's Q4 Results

With a market capitalization of $8.83 billion Sensata Technologies is among smaller companies, but its more than $1.7 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by how strongly Sensata Technologies outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the rest of the year was upgraded. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Sensata Technologies. The company is flat on the results and currently trades at $57.36 per share.

Sensata Technologies may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.