Growing Electrical Component Firms: Belden Inc. (BDC), Daktronics, Inc. (DAKT)

Given the range of industries served by electrical equipment providers, if an entity has a strong presence in one growth end market it can mitigate the effect of other struggling businesses and drive profit gains. Telecom-related sectors, including networking products and wireless communications may well support earnings improvements at certain companies. Additionally, when one industry player fills a niche by specializing in a particular product, margins can be healthy, supporting income, and investors can potentially be rewarded. Here are a few I’ve discovered:

Belden Inc. (NYSE:BDC)

Belden manufactures cable, connectivity, and networking products, catering to industrial, enterprise, broadcast, and consumer-based customers. The key segment spurring profit advances has been networking products. In fact, that unit, contributing about one-quarter of revenues, grew its top line 55% in the latest December quarter, as compared with the prior-year period. Notably, much of this was through growth by acquisition, as Belden acquired Miranda Technologies, a broadcast infrastructure company, in July 2012. In addition, it improved the profitability of its portfolio, divesting consumer electronics assets in China, as well as its Thermax and Raydex businesses.

This year, Belden is well-situated to boost earnings substantially. In fact, management is guiding toward a share-net gain of 23% to 32%, to between $3.44 and $3.69. It cited favorable secular trends and heightened market share, along with cost-cutting initiatives, namely Market Delivery System and Lean Enterprise. The product focus will be signal transmission solutions, a product category that should support expected growth, despite soft conditions in certain end markets.

BDC shares are fairly priced, based on the forward P/E ratio and may well thus have upside, as profits continue to swell.

TESSCO Technologies, Inc. (NASDAQ:TESS)

TESSCO is a company firmly entrenched in the wireless broadband market, one where spending growth is apt to persist as demand for services rises and the use of data and video services continues to expand. Its core Base station infrastructure unit is experiencing rapid profit gains and should continue to be a boon to earnings.

Be aware that TESSCO’s top line will probably decrease in the near term, as its largest customer winds down the exiting of its third-party logistics operation with Belden. Positively, though, those revenues were low-margined. In all, a sharp decrease in Tier 1 carrier revenues is apt to hamper revenues but lift profitability across the company. On that note, its other customer contingencies, including public systems operators, Tier 2/3 carriers and others are contributing a growing proportion of sales.

TESS shares have been prone to volatility but have upside in light of the earnings trend.