LFUS Stock Study (3-29-23)

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $257.96.

M* writes:

     > Littelfuse is a primary provider of circuit protection products
     > (such as fuses and relays) into the transportation, industrial,
     > telecommunications, and consumer electronics end markets. The
     > firm is also increasing its power semiconductor business, where
     > it predominantly serves industrial end markets and is breaking
     > into electric vehicle charging infrastructure.

This medium-sized company has grown sales and EPS at annualized rates of 13.6% and 13.8%, respectively, over the last decade. Lines are generally up and parallel with sales declines in ’19 and ’20 along with EPS declines in ’15, ’19, and ’20. PTPM has been cyclical over the last decade above peer and industry averages with a last-5-year average of 13.6%.

Over the last 10 years, ROE has been cyclical and above peer and industry averages with a last-5-year average of 12.3%. Debt-to-capital over the decade has generally been lower (higher) than industry (peer) averages with a last-5-year average of 30.6%. Value Line rates the company B++ for Financial Strength. M* gives a Standard rating for Capital Allocation, writing that the company has “a sound balance sheet, based on low net debt.” Quick Ratio is 1.5, and Interest Coverage is 17.9.

I forecast long-term annualized sales growth of 4% based on the following:

• CNN Business projects a 4% YOY contraction and 2% growth per year for ’23 and ’22-’24 (based on 8 analysts).
• YF projects YOY 2.5% contraction and 6.4% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 3.4% contraction and 5.9% growth for ’23 and ’24, respectively (3).
• Value Line projects 4.1% annualized growth from ’22-’27.
• CFRA gives an ACE of 2.4% YOY contraction and 2.1% growth per year for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 3.3% annualized growth along with 5.6% growth for the next five years in its analyst note.

I forecast long-term annualized EPS growth of 4% based on the following:

• CNN Business projects contraction of 24.7% YOY and 7.4% per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 12%.
• MarketWatch projects contraction of 24.4% YOY and 7.2% per year for ’23 and ’22-’24, respectively (8 analysts).
• Nasdaq.com projects 14.6% YOY growth for ’24 (4).
• Seeking Alpha projects 4-year annualized growth of 8.5%.
• YF projects YOY contraction of 24.3% and 15.7% growth for ’23 and ’24, respectively (7), along with 10.3% annualized growth for the next five years.
• Zacks projects YOY 25.6% contraction and 14.6% growth for ’23 and ’24, respectively (4), along with 12% annualized growth for the next five years.
• Value Line projects 0.6% annualized growth from ’22-’27.
• CFRA projects contraction of 14.5% YOY and 0.5% per year for ’23 and ’22-’24, respectively (7).
• M* provides long-term ACE of 9% annualized growth.

Value Line is a downside outlier of six long-term EPS projections. Its left-margin table says 14.5% annualized from ’20-’22 to ’26-’28, but I can’t get this from numbers in the statistical array. Per the latter, 4.7% annualized growth is projected from 2021 through 2027 (my interpretation of ’26-’28). I will use the 4.7% in place of 0.6% and forecast conservatively toward the lower end of the range (mean of long-term estimates using the 0.6% for Value Line is 9.1%).

To counter the argument that my forecast is unreasonably low, I would also point out that earnings have spiked 68.1% per year over the last two years. Whenever this happens, my gut tells me [for one reason or another] time will be needed in order to digest the hefty gains.

My Forecast High P/E is 21. High P/E went from 24.1 in ’13 to 48.5 in ’20 before heading down to 21.9 in ’22. The last-5-year average is 34.6. I am forecasting below the range.

My Forecast Low P/E is 13. Low P/E went from 15.3 in ’13 to 28.2 in ’17 before heading down to 12.9 in ’22. The last-5-year average is 20.7. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast is the default value of $194.20. This is 24.7% below the previous closing price and 1% above the 52-week low.

Over the last 10 years, Payout Ratio has ranged from 15.1% in ’22 to 36.3% in ’20 with a last-5-year average of 25.2%. I am forecasting just below the range at 15%.

These inputs land LFUS in the HOLD zone with an U/D ratio of 1.9. The Total Annualized Return (TAR) is 8.9%.

PAR (using future average—not high—P/E) is 4.6%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, however, then I will focus on the TAR rather than PAR.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 205 studies done in the past 90 days, averages for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 9.3%, 9.0%, 27.0, 19.4, and 26.1%. I am much lower across the board. MS high and low EPS are $22.12 and $13.40 compared to my $18.18 and $14.94. My low EPS may be greater than MS due the latest quarterly earnings release, and my high EPS is less due to a lower forecast growth rate. MS has a Low Stock Price Forecast of $186.22, which is 4.1% lower than mine (not surprising since the stock has rallied 15% over the last three months). Value Line forecasts average annual P/E of 24 compared to MS 23.2 and my 17.

A robust MOS underlies this study, and I would be a buyer under $240/share.