Amphenol: A Solid, Mature Tech Business (APH)

In the parlance of Malcolm Gladwell, Amphenol Corp (APH) is a connector. Well, at least they sell them. Amphenol sells the mini data highways that connect all sorts of high tech equipment in the communications, industrial, automotive, aerospace and military industries. Don't think long connections or cables, though, Amphenol's connectors are largely interconnects used to create connections between circuit boards and other parts within devices like wireless handsets, cable set-top boxes, routers, switches, oil exploration equipment, satellite radio systems, medical equipment, aerospace engine controls, radar systems and military vehicles (among others).

Of course I wouldn't suggest gross abuse to any piece of technology (think Office Space), but if you were to pop open your cell phone or your laptop or cable modem, you'll see wires connecting various areas of the machine's guts. These allow information to be passed within the device.

I would consider Amphenol a solid, mature tech business. Certainly working in sexy market areas like cellular equipment and satellite radio, but selling mostly high volume, lower margin parts. They have been growing at a steady 15-20% clip since the bubble burst and their sales declined in 2002 and they even have a dividend - yes, that's right a dividend. It's small, but I think it's the right direction for a business at this stage. They have a nice 30%+ return on equity and besides a blip last September, they've been beating analyst projections (most recently by $0.04 in March).

The valuation of the stock pretty much reflects what I think is the full value here. Using an 18% projected growth rate, it's trading at a PEG of around 1.3x on trailing EPS and 1.1x on forward EPS projections. According to Yahoo!Finance, price to sales is around 2x and price to book value is around 6x, maybe a little high. I think this should continue to trade on a 22 to 23x P/E on trailing EPS, so, if they hit their numbers you're looking at upside to $61.50, or 14% over what they're trading at right now.

A 14% upside isn't bad, but given risk in their end markets - communications in a slowing economy and military in an Iraq wind-down - I'm not rushing out to buy this stock right here.

Bottom Line: HOLD