Longbow Upgrades Littelfuse On Long-Term Growth Profile

Shares of Littelfuse, Inc. LFUS came under selling pressure Wednesday after the company reported disappointing EPS results.

The company is poised to benefit from content growth from auto circuit protection and vehicle electrification, according to Longbow. Littelfuse’s margins could expand in the back half of 2019 and through 2020, following the restructuring of its legacy operations and IXYS Corporation IXYS.

The Analyst

Longbow’s Shawn Harrison upgrades Littelfuse to Buy, while instituting a price target of $200.

The Thesis

Auto circuit protection constitutes 15 percent of Littelfuse’s sales and vehicle electronics and charging stations contribute 8 percent to 10 percent, Harrison said.

IHS had raised its projection for EVs in 2018, expecting this segment to grow to around 41 percent of global auto production in 2025, which Littelfuse is well positioned to benefit.

Harrison added that the company has an underleveraged balance sheet and strong free cash flow of an estimated $240 million for 2019. Littelfuse aims at spending 60 percent of its FCF on M&A and has ample opportunities and management capability to do so.

Every $100 million of capital invested in M&A could contribute 5 cents in EPS in the first year and up to 15 cents by the third year, the analyst mentioned.

Price Action

Shares of Littelfuse traded at $176.75 Thursday morning.

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