The shares of sensor and control company Sensata (NYSE:ST) remain in that frustrating intersection of potential value and unimpressive near-term performance. Although I believe that Sensata is and remains a quality company, it is hard to get excited about a stock where management is guiding to decelerating growth through the year at a time when many industrial names are seeing signs of building momentum.
I don't think my underlying assumptions on Sensata are all that aggressive. I model a fair value of around $42 to $44 on the basis of 3% to 4% revenue growth and free cash flow margins improving into the high teens (driving FCF growth around 7%), and I expect the company to continue to diversify away from autos through both M&A and organic means. Sensata's valuation multiples have definitely shrunk as growth has slowed and there is a risk that this is a value trap. Standing against that risk is the idea that this is a quality business with meaningful margin leverage and addressable market expansion potential.
Sensata Technologies Shares Going Nowhere Fast