Episode Details

TE Connectivity (TEL) Q3 FY2026 — TE Connectivity (TEL), the maker of the connectors and sensors that move power, signal and data through cars, factories and — increasingly — AI data centers, delivered a record fiscal Q3 2026 above guidance: adjusted EPS of $2.94 (+22% YoY, vs ~$2.83 est) on record net sales of $5.16B (+14% reported, +12% organic). Adjusted operating margin hit a record 21.9% (+90 bps) and orders reached an all-time high of $5.7B (+27%), with double-digit growth in every business. The story of the quarter: the Industrial segment (AI data center, energy, automation) grew 22% and now OUT-EARNS the legacy auto business — $588M of adjusted operating income (22.8% margin) vs Transportation's $541M (21.0%) — with sales now dead even at $2.58B each. Management RAISED the outlook (Q4 sales ~$5.25B, adj EPS ~$3.05). The stock popped ~2.9% to ~$209 but still sits ~17% below its 52-week high. Our owner-earnings DCF blends to ~$228 (base ~$198 ≈ price, AI-upside ~$258 = the Street). Our call: BUY, 3/5. TE Connectivity is the quiet backbone of the physical economy — the ~$61B maker of connectors and sensors that route power, signal and data inside vehicles, factories, aircraft, the power grid, and the AI data center. For years the market treated it as a cyclical auto-parts supplier, but fiscal Q3 2026 (quarter ended June 26) reframed the story. It was a clean beat-and-raise: record adjusted EPS of $2.94 (+22% YoY) on record net sales of $5.16B (+14% reported, +12% organic), a record 21.9% adjusted operating margin (+90 bps), and record orders of $5.7B (+27%, double-digit growth in every business) — all above guidance, with management raising the outlook again (Q4 sales ~$5.25B, adj EPS ~$3.05; FY26 on a double-digit sales and EPS track). The engine was Industrial Solutions — AI data center, energy and automation — which grew over 20% and, for the first time, now OUT-EARNS the legacy Transportation (auto) segment: $588M of adjusted operating income at a 22.8% margin versus $541M at 21.0%, with segment sales now dead even at $2.58B each. That is the re-rating case in a single quarter. The honest other side: about half the company is still cyclical auto (Transportation grew ~5% organically), free cash flow actually fell to $883M (from $962M) as capex ramped to fund AI capacity, and a chunk of the Industrial boom rides the AI build-out, which could prove lumpy. On valuation, TE trades at ~18x FY26 adjusted EPS (~$11.44), ~14x EV/EBITDA and ~20x free cash flow — reasonable for a mid-teens grower and a clear discount to premium peer Amphenol. Our owner-earnings DCF blends to ~$228 (base case ~$198 ≈ today's price; AI-upside case ~$258, which matches the Street). Our call: a modest BUY, 3/5 — the print validates the AI/data-center thesis, the stock is reasonably priced and ~17% off its high, and you get the AI-upside case as a free option. We're aligned with, but more conservative than, the Street's bullish ~$258 target (+24%). Watch orders, free-cash-flow conversion, and the auto side. Not financial advice. THE CALL: BUY (3/5, A GENUINE BEAT-AND-RAISE WITH AN ACCELERATING, HIGHER-MARGIN AI/DATA-CENTER MIX — A MODEST BUY WITH REAL, IF NOT DEEP, UPSIDE) — base-case value ~$228 vs ~$209 today. What to watch: sustained double-digit Industrial orders and continued AI/data-center momentum, which would push the multiple toward premium peer Amphenol and justify the AI-upside case (~$258); the risk to respect is a cyclical downturn in automotive AND a pause in AI-data-center capex at the same time, which would stall free cash flow (already running below earnings on heavy growth capex) and compress the multiple — watch the orders trend and FCF conversion above all Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.