Sensata Earnings: Long-Term Electrification Growth Thesis Intact Despite Near-Term Market Choppiness

We maintain our $71 fair value estimate for Sensata Technologies' shares after second-quarter results showed the firm continuing to work its way through bumpy end market conditions. Sensata’s sales exceeded our expectations, but guidance for the third quarter missed our model. The firm continues to deal with headwinds like inventory destocking at customers and foreign exchange headwinds as well as soft industrial demand. End markets look choppier for 2023 than previously expected, but in the long term we see the firm as a major beneficiary of electrification. Its design activity over the past three years will pave the way for strong growth in 2024 and beyond, in our view. We continue to see shares as cheap for a narrow-moat company with appealing growth and profitability prospects. Shares dropped 8% on weak guidance, but we think the market is not focusing enough on long-term opportunity.