Amphenol (APH)

Electrical connector manufacturer Amphenol (NYSE:APH) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 47.7% year on year to $4.81 billion. On top of that, next quarter’s revenue guidance ($4.95 billion at the midpoint) was surprisingly good and 7.9% above what analysts were expecting. Its non-GAAP profit of $0.63 per share was 21% above analysts’ consensus estimates.

Company Overview

With over 90 years of connecting the world's technologies, Amphenol (NYSE:APH) designs and manufactures connectors, cables, sensors, and interconnect systems that enable electrical and electronic connections across virtually every industry.

The sector could see higher demand as the prevalence of advanced electronics increases in industries such as automotive, healthcare, aerospace, and computing. The high-performance components and contract manufacturing expertise required for autonomous vehicles and cloud computing datacenters, for instance, will benefit companies in the space. However, headwinds include geopolitical risks, particularly U.S.-China trade tensions that could disrupt component sourcing and production as the Trump administration takes an increasingly antagonizing stance on foreign relations. Additionally, stringent environmental regulations on e-waste and emissions could force the industry to pivot in potentially costly ways.

Amphenol competes with several major interconnect and sensor manufacturers including TE Connectivity (NYSE:TEL), Molex (owned by Koch Industries), Aptiv (NYSE:APTV), Sensata Technologies (NYSE:ST), and Foxconn (TPE:2317), along with specialized players like Glenair, HARTING, and Hirose Electric.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $16.78 billion in revenue over the past 12 months, Amphenol is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

As you can see below, Amphenol grew its sales at an incredible 15.6% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Amphenol’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Amphenol’s annualized revenue growth of 15.2% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Amphenol reported magnificent year-on-year revenue growth of 47.7%, and its $4.81 billion of revenue beat Wall Street’s estimates by 13%. Company management is currently guiding for a 37.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.5% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is eye-popping given its scale and indicates the market is forecasting success for its products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Amphenol has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 20.3%.

Looking at the trend in its profitability, Amphenol’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Amphenol generated an operating profit margin of 21.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Amphenol’s EPS grew at an astounding 18.9% compounded annual growth rate over the last five years, higher than its 15.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Amphenol’s earnings to better understand the drivers of its performance. As we mentioned earlier, Amphenol’s operating margin was flat this quarter but expanded by 1.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Amphenol reported EPS at $0.63, up from $0.40 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Amphenol’s full-year EPS of $2.12 to grow 12.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Amphenol has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 14.1% over the last five years.

Taking a step back, we can see that Amphenol’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Amphenol’s free cash flow clocked in at $576.3 million in Q1, equivalent to a 12% margin. The company’s cash profitability regressed as it was 3.5 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Amphenol’s five-year average ROIC was 19.7%, beating other business services companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Amphenol’s ROIC averaged 3 percentage point increases over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Amphenol reported $1.67 billion of cash and $7.17 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.37 billion of EBITDA over the last 12 months, we view Amphenol’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $102.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Amphenol blew past analysts’ revenue and EPS expectations this quarter. We were also excited its EPS guidance for next quarter outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 12% to $73.70 immediately after reporting.

Updated: May 21, 2025 at 11:55 PM EDT

When considering an investment in Amphenol, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are numerous reasons why we think Amphenol is one of the best business services companies out there. For starters, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. On top of that, its scale makes it a trusted partner with negotiating leverage, and its impressive operating margins show it has a highly efficient business model.

Amphenol’s P/E ratio based on the next 12 months is 35.9x. Analyzing the business services landscape today, Amphenol’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $88.25 on the company (compared to the current share price of $85.60), implying they see 3.1% upside in buying Amphenol in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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