Littelfuse Inc. (LFUS) is an electrical products manufacturer involved in the designing, manufacturing, and marketing of components involved in electrical energy - from switches and sensors to integrated circuits and semiconductors. Valued at $6.46 billion by market cap, the company serves its diverse customer base through a global distribution network, and operates through three main segments: Industrial, Electronics, and Transportation.
Founded in 1927 with its headquarters in Chicago, the mid-cap company serves more than 100,000 customers, and has more than 17,000 employees in over 20 countries.
LFUS stock has lagged the broader market over the past year, with the shares down 1.2% over the past 52 weeks. Likewise, the stock is off more than 4% YTD, compared to broadly positive returns for the S&P 500 Index ($SPX) over both time frames.
However, LFUS set a new 52-week high of $275.58 in mid-July, and the shares rallied 3.7% in a single day on July 31 after a stronger-than-forecast earnings report.
With the shares starting to build some positive momentum after a lengthy period of underperformance, it may be worth picking up LFUS as the shares trade around 6.8% below recent highs.
Littelfuse Beats on Q2 Earnings
Littelfuse reported its Q2 earnings results after the close on July 30, with revenue reaching a better-than-expected $558.5 million, even as the top line dipped 9% on a year over year basis. GAAP earnings were $1.82 per share, or $1.97 per share on an adjusted basis, which beat Wall Street's $1.75 consensus.
Management believes that “the passive electronics channel destocking that negatively impacted 2023 and the first half of 2024 results is largely behind us,” but said there are signs of customer caution on restocking following what Littelfuse President and CEO Dave Heinzmann described as “a historic and elongated destocking cycle.”
Operating cash flow arrived at $69 million for the period, with free cash flow of $50 million. Littelfuse had $562 million of cash on hand at the end of Q2.
“Demand for data center and especially AI-driven data center applications was robust in the second quarter,” noted Heinzmann on the conference call. He called out “several data center wins" during Q2, including “a data center customer in Asia that will utilize our switch technology.”
For the current quarter, management expects Q3 revenue in the range of $540 million to $570 million, with earnings of $1.95 to $2.15 per share.
Littelfuse's Capital Allocation Strategy
Littelfuse also announced a dividend hike of 7.7%, taking its quarterly payout to $0.70 per share.
LFUS now has a forward dividend yield of 1.07%, backed by 13 years of continuous growth. The company has increased its dividend at a CAGR of 12% since inception.
During Q2 alone, LFUS returned $41 million of capital to shareholders - $25 million through share repurchases, and $16 million through dividends.
"Given the strength of our balance sheet, we'll continue to prioritize our free cash flow for thoughtful acquisitions, and we will continue to return capital to our shareholders through our dividend and periodic share buybacks," commented CFO Meenal Sethna.
Analysts Warm Up to Littelfuse Stock
Littelfuse stock, which had a near-unanimous “Hold” rating from analysts a few months ago, now boasts a consensus “Moderate Buy” recommendation from Wall Street.
Currently, out of 7 analysts tracking the stock, 2 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 4 have a “Hold” rating. That compares pretty favorably to 1 “Moderate Buy” and 6 “Holds" just three months ago.
Most recently, Stifel upgraded the stock to “Buy” from “Hold,” alongside a price-target hike from $270 to $280. Echoing Littelfuse management's own optimism, the brokerage firm believes a return to sales growth is on the horizon for Q4 and into 2025 as inventory levels normalize.
"Although the company's sales and margins remain depressed, at three-year lows, Stifel believes the component cycle has firmly bottomed, with book-to-bill ratios modestly improving, and customer inventories down significantly," wrote the firm in a note to clients, while also pointing to the electrical component company's strong balance sheet and free cash flow.
The average analyst price target for LFUS is $284.00, about 10.6% higher than Friday's close.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
