Focus On Renewables And Automation Will Open Future Market Opportunities

Key Takeaways

• Littelfuse's focus on product design wins and secular growth drivers suggests potential market expansion and long-term revenue growth.
  
• Operational improvements and cost realignment have boosted profitability, supporting potential earnings growth and shareholder value returns.
  
• Littelfuse faces revenue and margin challenges due to declines in sales, EV infrastructure issues, and geopolitical risks impacting key markets.

Catalysts

Designs, manufactures, and sells electronic components, modules, and subassemblies in the Americas, Asia-Pacific, and Europe.

• Littelfuse is observing signs of stabilization in electronics demand with their book-to-bill ratio reaching its highest level since 2022. This suggests recovering sales momentum and potential revenue growth in the coming quarters.
  
• The company has been enhancing its product design wins, which include significant contracts across various applications such as data centers, appliances, and medical fields, indicating future revenue streams and market expansion.
  
• Operational improvements and cost structure realignment have led to meaningful profitability enhancements, suggesting future margin expansion and earnings growth.
  
• Littelfuse is focusing on multiple secular growth drivers, including renewables, automation, and industrial safety, which are expected to contribute to long-term revenue and bottom-line growth.
  
• Strong cash flow generation in 2024 has positioned the company to support its long-term growth strategy with potential for acquisitions and shareholder value returns via dividends and buybacks, impacting future EPS positively.

Littelfuse Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Littelfuse's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.9% today to 13.8% in 3 years time.
• Analysts expect earnings to reach $362.5 million (and earnings per share of $14.83) by about January 2028, up from $194.9 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 24.4x on those 2028 earnings, down from 28.5x today. This future PE is lower than the current PE for the US Electronic industry at 25.5x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.44%, as per the Simply Wall St company report.

Littelfuse Future Earnings Per Share Growth

Risks

• Littelfuse experienced a 7% decline in sales for the full year 2024, indicating potential challenges in driving revenue growth moving forward.
  
• The company incurred a $93 million impairment charge related to ongoing weak EV charging infrastructure trends, impacting net margins and earnings.
  
• Sales in the Transportation Products segment were negatively affected by global car build declines and planned exits from auto sensor product lines, suggesting potential pressure on future revenue.
  
• The Electronics Products segment saw a decrease in sales, particularly in semiconductor products, which could continue to affect overall revenue and profit margins.
  
• Weakness in key markets such as Europe and the commercial vehicle sector, alongside geopolitical uncertainties, could pose risks to revenue stabilization and growth.

Valuation

• The analysts have a consensus price target of $296.85 for Littelfuse based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $362.5 million, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $224.0, the analyst's price target of $296.85 is 24.5% 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.