Sensata Smoothing Over Auto Production Uncertainty With Impressive Outperformance; Reiterate $75 FVE

We are maintaining our $75 fair value estimate for narrow-moat Sensata Technologies after the company reported strong third-quarter results and guided for a weaker fourth quarter. Sensata’s revenue and non-GAAP operating income came in mostly in line with our above-consensus expectations, and both metrics beat the top end of their respective guidance range. Nonetheless, management is guiding to a sequential decline in the fourth quarter behind lower-than-previously-expected automotive production stemming from ongoing supply challenges. Sensata’s performance is heavily tied to transportation end markets (74% of third-quarter sales), but, despite the short-term industry challenges, we remain bullish on its long-term prospects. We think vehicle electrification provides a long-term growth runway for Sensata and will lead to continued outperformance over underlying automotive and heavy vehicle production, regardless of the market backdrop. We continue to view shares as significantly undervalued and think the market will reward Sensata investors as supply constraints ease and market outperformance becomes more visible on the top line.