July 21, 2008 - Amphenol Corp. (APH-NYSE) designs, manufactures, and markets electrical, electronic and fiber optic connectors, interconnect systems, and coaxial and flat-ribbon cable worldwide. The company produces a range of interconnect products and assemblies primarily for voice, video, and data communication systems; commercial aerospace and military systems; automotive and mass transportation applications; and industrial and factory automation equipment.

The company's various industrial applications include factory automation and motion control systems, medical and industrial instrumentation, mass transportation and natural resource exploration, and automotive applications. Its cable products include coaxial cable and connector products used in cable television systems, including full service cable television/telecommunication systems.

The company also offers speed data cables and specialty cables, including flat-ribbon cable, which is used to connect internal components in computer and office equipment applications, as well as in various telecommunication applications. Amphenol Corporation markets its products directly, as well as through manufacturers' representatives and distributors to original equipment manufacturers, contract manufacturers, cable system operators, and telecommunication companies. The company was founded in 1932 and is headquartered in Wallingford, Connecticut.

The price chart shows a stock that starting climbing in 2002 (when it traded for $6.90 a share at the low of that year) and moving steadily upward with 2 stock splits (each 2 for 1) along the way. It recently hit an all-time high of $51.39. Can it keep going?

It can if it keeps beating analysts' earnings expectations, as it just did this week, announcing a 31% increase above last year's same quarter. From the company's quarterly conference call: Diluted earnings per share for the quarter of $0.61, was up 33% from last year. The company continues to be an excellent generator of cash. Cash flow from operations was $96 million in Q2. For the six months ending June 30, operating cash flow was approximately 99% of net income. The cash flow from operations along with $13 million in proceeds and tax benefits from option exercises were used to fund capital expenditures of $31 million. Acquisition related expenditures of $29 million relating to both the acquisition in June and the payment of liabilities relating to prior acquisitions. We reduced debt by $33 million in the quarter and paid $2.7 million in dividends. In addition, cash and short-term investments increased about $13 million to just under $200 million at the end of June. (For the full transcript of the call, click here)

Next quarter consensus estimates are for 59 cents per share, then 61 cents in the final quarter. For the full year, analysts look for $2.33 followed by $2.60 next year. Last year, the company made $1.94, up from $1.47 in 2006.

Sales are ramping (up 14% a year, on average, over the last 5 years), thanks to new acquisitions (recently closed on a company in June), new product development, wide customer base, and a strong geographical dispersion. Over the next 5 years, analysts look for revenue growth of 12.5% a year, on average, while earnings grow at 14% a year, on average.

Emerging, developing economies are ordering more Amphenol products, ones like mobile networking and devices. Information technology and data communications products are also in high demand. Its customer base is growing and will add new sales, especially from the military/aerospace market, industrial sector, as well as oil and gas, commercial aircraft, utilities and medical industries. Even automotive revenues should grow with a recent increase in customer wins.

To help profitability, more sales are coming from higher-margined products like ones from the Interconnect group which accounts for more than 90% of all revenues. Cost cutting is part of the focus to aid margins as well.

The company is buying back shares, using debt to do it. At the end of March, there were still 8 million shares to buy under the current authorization program. That should help earnings per share this year but not markedly. There are 175.365 million shares outstanding.

Check into Amphenol if you're looking for a company that delivered steady performance for the last 6 years, increasing earnings at a respectable rate, and is growing in all the right ways. Just remember the price is at an all-time high and the valuation (P/E at 25; PSR at 3) is getting well ahead of the earnings growth rate.

- Company Web site: www.amphenol.com

- Ted Allrich