LFUS Stock Study (9-28-23)

Posted by Mark on December 28, 2023 at 06:19 | Last modified: September 28, 2023 11:05

I recently did a stock study on Littelfuse Inc. (LFUS) with a closing price of $243.51. Previous studies are here and 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 leads peer and industry averages while appearing cyclical with a last-5-year mean of 13.6%.

Also over the past decade, ROE leads peer averages and is roughly even with the industry by decreasing from 13.4% (’13) to 8.5% (’20) and recovering to 17.7% (’22) for a last-5-year mean of 12.3%. Debt-to-Capital is lower than industry averages while exceeding peers by increasing from 24.2% (’13) to 32.4% (’22) for a last-5-year mean of 30.6%.

Interest Coverage is 11.6 and Quick Ratio is 1.7. Value Line rates the company B++ for Financial Strength and M* gives a “Standard” rating for Capital Allocation, writing that the company has a sound balance sheet and low net debt.

With regard to sales growth:

• CNN Business projects flat YOY and 2.0% growth per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• YF projects YOY 5.3% contraction and 5.8% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 5.5% contraction and 5.3% growth for ’23 and ’24, respectively (3).
• Value Line projects 3.6% annualized growth from ’22-’27.
• CFRA gives ACE of 5.3% YOY contraction and flat growth per year for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 1.3% annualized growth.

I am discounting the long-term estimate by nearly half to 2.0% per year due to the negative short-term projections.

With regard to EPS growth:

• CNN Business projects contraction of 19.2% YOY and 6.4% per year for ’23 and ’22-’24, respectively (based on 4 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects contraction of 27.2% YOY and 10.0% per year for ’23 and ’22-’24, respectively (7 analysts).
• Nasdaq.com projects 13.1% YOY growth for ’24 (3).
• Seeking Alpha projects 4-year annualized growth of 12.0%.
• YF projects YOY 28.4% contraction and 14.4% growth for ’23 and ’24, respectively (6), along with 5-year annualized growth of 10.3%.
• Zacks projects YOY 29.1% contraction and 13.1% growth for ’23 and ’24, respectively (3), along with 5-year annualized growth of 12.0%.
• Value Line projects 2.7% annualized growth from ’22-’27.
• CFRA projects contraction of 19.3% YOY and 4.6% per year for ’23 and ’22-’24, respectively (7).
• M* provides long-term ACE of 8.1% 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 the statistical array projects as stated above.

I wonder about data duplication with companies 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 analysts?

The mean of 6 long-term estimates is 9.5%. If I count the duplicate estimates just once, then the mean (4 estimates) is 8.3%. I am cutting this by ~40% to get my 5.0% per year forecast. I will use 2023 Q2 EPS of $13.09/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 then back 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 entire range.

My Forecast Low P/E is 14.0. Over the past decade, low P/E goes from 15.3 in ’13 to 28.2 in ’17 before retreating 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) of $183.30 is default based on $13.78/share EPS. This is 24.7% less than the previous closing price and 4.6% less than the 52-week low.

Over the past decade, Payout Ratio ranges 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 1.8. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) of 4.6% is less than the current yield on T-bills. 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 114 studies (my study and 43 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.8%, 8.3%, 26.0, 17.8, and 26.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 22.0 is just higher than MS (21.9) and much higher than mine (17.5).

MS high / low EPS are $19.68 / $13.28 versus my $16.71 / $13.09 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $19.25. I am lowest of the three.

MS LSPF of $189.30 implies a Forecast Low P/E of 14.3: less than the above-stated 17.8. MS LSPF is 19.9% less than the default $13.28/share * 17.8 = $236.38, which results in more conservative zoning. MS LSPF is still 3.3% greater than mine.

My TAR (over 15.0% preferred) is much less than the 16.1% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.7 and 3.5 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.7. Kim Butcher’s “quick and dirty DCF” prices the stock at 16.0 * [$24.20 – ($3.00 + $4.20)] = $272.00, which suggests the stock to be 10.5% undervalued.

LFUS is a BUY under $225. With a forecast high price at $350.80, TAR should meet my 15% criterion around $175/share.