LFUS – Market expectations are for Uniform ROA to rebound, but management may have concerns about their margins, demand, and costs

April 7, 2021

  • Littelfuse, Inc. (LFUS:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 26.2x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about their operating margins, customer demand, and variable costs
  • Specifically, management may lack confidence in their ability to develop new solutions in overvoltage and thermal protection, profitably grow in the industrial segment, and sustain their operating margins. In addition, they may have concerns about the sustainability of customer demand, particularly from nonresidential construction markets, and they may be downplaying concerns about continued pandemic-related headwinds. Furthermore, they may be overstating the progress of their global presence expansion across commercial vehicle applications as well as their focus on reinvesting in best-in-class organic growth. Finally, management may be concerned about the impact of the pandemic on M&A opportunities, supply constraints from semiconductor manufacturers, and their reinstatement of certain variable costs