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LFUS Stock Study (6-22-23)

Posted by on August 8, 2023 at 06:34 | Last modified: June 22, 2023 10:10

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $278.96. The original study is here.

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.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 13.6% and 13.8%, respectively. 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 (recently trending up) albeit ahead of peer and industry averages with a last-5-year mean of 13.6%.

Also over the past decade, ROE has been cyclical (recently trending up) and above peer and industry averages with a last-5-year mean of 12.3%. Debt-to-Capital over the decade has generally been lower than the industry but higher than peer averages with a last-5-year mean of 30.6% (recently trending up). 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 and low debt. Quick Ratio is 1.5, and Interest Coverage is 14.2.

With regard to sales growth:

I am discounting the one long-term estimate by 25.0% and forecasting 3.0% per year.

With regard to EPS 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 ’27 (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 at 4.0% (mean of long-term estimates using the 0.6% for Value Line is 9.2%).

I do wonder about data duplication. I’ve seen this in the past with other companies being covered by few analysts. Three of the six long-term estimates here are exactly 12.0% (not 11.8%, 12.1%, etc.) despite coming from three different data sources; could those be the same few analysts?

I am using 2021 Q1 EPS of $13.78/share (annualized) as the initial value rather than ’22 EPS of $14.94 to be conservative

My Forecast High P/E is 21.0. Over the past decade, high P/E goes from 24.1 in ’13 to 48.5 in ’20 before heading down to 21.9 in ’22. The last-5-year mean high P/E is 34.6 and the last-5-year-mean average P/E is 27.7. I am forecasting below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E goes from 15.3 in ’13 to 28.2 in ’17 before heading down to 12.9 in ’22. The last-5-year mean is 20.7. I am forecasting near the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $179.10 based on $13.78/share EPS. This is 35.8% less than the previous closing price and 6.5% less than the 52-week low.

Over the past decade, 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 15.0%.

These inputs land LFUS in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 5.5%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 1.3%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 124 studies over the past 90 days (my study and 58 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.4%, 8.4%, 25.8, 18.2, and 26.5%, respectively. I am lower across the board. Value Line projects an average annual P/E of 24.0, which is higher than MS (22.0) and much higher than mine (17.0).

MS high and low EPS are $21.20/share and $13.75/share versus my $16.77 and $13.78. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $186.80 implies a Forecast Low P/E of 13.6 (vs. the above-stated 18.2). This is 25.4% less than the default value $13.75 * 18.2 = $250.25, which results in more conservative zoning. It remains 4.3% higher than mine, however. MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.71 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 0.58. In this case, the latter looks attractive whereas the former does not.

I would look to re-evaluate LFUS under $222/share.

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