Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications

Business Strategy & Outlook

The Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications. While the firm is a smaller player than other competitors in the components market under our coverage, it has aligned its portfolio toward secular themes of safety, efficiency, and connectivity to pursue growth. The Littelfuse’s best organic growth opportunities will come from vehicle electrification; battery electric vehicles require five times the circuit protection content of an internal combustion counterpart, and charging infrastructure presents a lucrative opportunity for the firm’s growing power semiconductor business.

Littelfuse’s passive components are small and inexpensive, yet vitally important to the safe and continuous function of mission-critical systems in end applications. Circuit protection products safeguard against electrostatic discharge and overcurrent to prevent component failure and/or fire in cars, power grids, data centers, and manufacturing plants. Even though individual parts like fuses and relays don’t carry a hefty price tag, the Littelfuse’s application expertise helps the firm stave off commoditization and creates sticky customer relationships. The Littelfuse will keep selling more content into ever-electrifying end products, especially as applications like cars and industrial equipment moves into higher voltages. Higher voltages and new applications like wind and solar power offer a greater electrical protection content opportunity and new selling opportunities for the firm’s emerging silicon carbide technology. The Littelfuse’s organic growth to benefit from ample cross-selling between its relatively new semiconductor customers (largely acquired through its IXYS deal in 2018) and its electrical protection customers. Meanwhile, the Littelfuse to continue acquiring in line with the consolidating electronic components industry, as management aims to achieve half of its long-term top-line growth target of 10%-14% inorganically.

Financial Strengths

The Littelfuse is in good financial shape. As of Jan. 1, 2022, the firm held $637 million in total debt and $478 million in cash on hand. The firm to satisfy its financial obligations with ease. Littelfuse has no more than $150 million coming due in a single year through 2026, and the firm averaged $226 million in free cash flow from 2017 to 2021. As per forecast firm to average $471 million in free cash flow per year over the explicit forecast. Littelfuse’s debt/adjusted EBITDA ratio of 1.29 times at the end of 2021 places it solidly at the low end of management’s long-term range of 1 times-2.5 times. The firm to remain leveraged, using debt to supplement free cash flow in funding future M&A opportunities. The Littelfuse is trending toward more frequent acquisitions of larger sizes in order to fulfill its 5%-7% inorganic growth target off of a higher revenue base. Following the use of cash on hand to fund the 2021 acquisitions of Hartland Controls and Carling Technologies, the next acquisition to involve Littelfuse incurring additional leverage. Even so, the firm to maintain its regular dividend and continue share repurchases.

Bulls Say

Secular trends toward renewable energy and electric vehicles should boost demand for Littelfuse’s products.

Littelfuse has a foot in the door of the emerging silicon carbide semiconductor market, which could fuel future rapid growth for the firm.

Littelfuse’s sticky customer relationships have helped it earn excess returns on invested capital even in the face of cyclical downturns like in 2019 and 2020.

Company Description

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. Littelfuse has 17,000 global employees.

(Source: Morningstar)

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