Littelfuse Gains Are Justified, But Valuation Appears Full Now

Littelfuse, Inc. LFUS share prices could be at the peak of their powers. 

The stock was downgraded by Oppenheimer from Outperform to Perform on Friday.

Littelfuse could consolidate recent gains made during the integration of IXYS Corporation IXYS, which Littelfuse bought for $750 million in August, and some favorable core electronics OM dynamics that occurred this year might not repeat in 2018, analyst Christopher Glynn said. 

Oppenheimer is projecting a period of low single-digit organic growth for Littelfuse. Moderate price downs in 2017 could offset 2018 productivity gains, and a generally weaker U.S. dollar could lead to a reversal of currency benefits, Glynn said. (See Glynn's track record here.) 

Oppenheimer increased its 2018 EPS forecast from $8.25 to $8.35 and projected Littelfuse's 2019 EPS at $9.45. The stock is trading 3.22 percent lower, with a multiple of 24x Oppenheimer's 2018 EPS and 21.4 times the 2019 EPS.

Acquisition integration could lead to long-term margin expansion for Littelfuse, and share prices are supported by the company's execution on organic growth opportunities and solid acquisition performance, Glynn said. 

Oppenheimer sees Littelfuse as the leading global franchise in circuit protection, with growing power control and sensing platforms. The company has a strong capital allocation and a leverage to secular growth drivers, Glynn said.

Potential catalysts for the stock are expedited auto design changes and acquisition activity, while potential risks include integration risks with IXYS and a tougher-than-expected transition from recently accelerated performance in the electronics segment, the analyst said. 

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