Efficient Energy And Data Center Solutions Will Create Key Opportunities

Key Takeaways

• Leadership in smart solutions and key supplier status in energy and data sectors positions Littelfuse for growth as demands increase.
  
• Strong global operations and focus on excellence could boost profitability and margins amid economic uncertainties.
  
• Littelfuse may face revenue risks and margin pressures due to economic uncertainties, market softness, management changes, and fluctuating commodity and currency conditions.

Catalysts

Designs, manufactures, and sells electronic components, modules, and subassemblies worldwide.

• Littelfuse's leadership in smart solutions for safe and efficient electrical energy transfer positions it well to capture growth in markets moving to higher power and energy density, potentially enhancing future revenue streams.
  
• The company is a key supplier in the growing grid storage market with essential circuit protection solutions, which can drive revenue growth as energy demands increase.
  
• In the data center market, Littelfuse's collaboration with hyperscalers on high-value power semiconductor solutions positions it for significant revenue and earnings growth as data centers evolve to higher power densities.
  
• Littelfuse's strong global operating model and flexible manufacturing capabilities may lead to improved net margins as it aligns closer to customer supply chains and navigates economic and tariff uncertainties.
  
• The company's strategic focus on operational excellence and leveraging best practices across its diverse business segments could enhance long-term profitability and margins as it grows.

Littelfuse Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Littelfuse's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 13.3% in 3 years time.
• Analysts expect earnings to reach $360.5 million (and earnings per share of $14.72) by about May 2028, up from $95.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, down from 49.4x today. This future PE is greater than the current PE for the US Electronic industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Littelfuse Future Earnings Per Share Growth

Risks

• Littelfuse faces potential demand risk in the second half of the year due to ongoing trade dynamics and economic uncertainties, which could impact future revenues.
  
• The company’s reliance on mitigative strategies and tariff playbooks to navigate tariffs may not fully protect against unexpected economic shifts, potentially affecting net margins.
  
• Prolonged softness in the power semiconductor market, especially in specific segments like automotive and industrial automation, may negatively impact earnings.
  
• The ongoing CFO transition could introduce financial management uncertainties, impacting the company’s ability to maintain strong profitability and cash generation.
  
• The potential effects of high commodity prices and foreign exchange fluctuations could offset the financial benefits, affecting net margins and earnings stability.

Valuation

• The analysts have a consensus price target of $258.353 for Littelfuse based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $296.12, and the most bearish reporting a price target of just $194.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $360.5 million, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of $190.58, the analyst price target of $258.35 is 26.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.