Littelfuse

Littelfuse’s second-quarter results exceeded guidance, with sales rising 20% year over year to $739 million. Likewise, third-quarter guidance calls for returns significantly above our model, implying 26% year over year growth to $790 million at the midpoint.

Why it matters: Littelfuse is benefiting from broad-based strong demand, particularly in electronics and industrial markets that are seeing greater electrification and moves to higher voltages. This is Littelfuse’s sweet spot, as outlined at its May 2026 investor day. Profitability is a bright spot, with non-GAAP operating margin expanding 320 basis points year over year to 19%, and guidance implying another significant jump. We like Littelfuse’s operating leverage on strong growth and see further expansion in the medium term. We’re excited by Littelfuse’s opportunity in data centers and grid infrastructure and appreciate that the firm saw growth in broader industrial markets, including HVAC. To us, Littelfuse is well-diversified, creating balanced growth over the medium-term, even as investors get excited about AI.

The bottom line: We raise our fair value estimate for narrow-moat Littelfuse to $415, from $390, to reflect higher growth forecasts across electronics and industrial markets. Shares rose 5% intraday after strong results and look fairly valued to us. Shares are still down more than 15% from a peak in June 2026, in sympathy with a broader tech bear market. We saw some excess data center and AI optimism priced into Littelfuse at the peak and see a better entry point for investors today. Our model comes in line with or above Littelfuse’s May 2026 investor day targets, particularly on profitability. We project non-GAAP operating margins hitting 23% in 2030, implying Littelfuse hits its 30%-35% incremental margin target and surpasses its $25.00 non-GAAP EPS target.

BLANK PAGELittelfuse raised its guidance for the Basler acquisition in 2026, up to $135 million-$140 million in revenue (from $130 million-$135 million) and $0.25-$0.30 in EPS (from $0.10-$0.15). We like the momentum here, and it reflects both a good acquisition program at Littelfuse and strong demand for industrial electrification.

Littelfuse provided an update on the planned closure of its Allen, Texas, power semiconductor manufacturing facility in 2027. Management expects this to enhance the profitability of its electronics segment, realizing savings in the back half of 2027. Broadly, we like the firm's steps to streamline its semiconductor exposure and focus on core competencies at high voltages for industrial and data center applications.

Our fair value estimate is $415 per share. Our fair value estimate implies fiscal 2026 price/adjusted earnings of 23 times and enterprise value/sales of 3 times.

We forecast revenue to increase at a compound annual rate of 12% through 2030. In 2026 we expect mid-20% growth, with about 6% of this being inorganic, stemming from the 2025 acquisition of Basler Electric. We expect about 20% organic growth in 2026, driven by recovering end markets and strength in data center electrical protection. Longer-term, we see Littelfuse growing in the high single digits, organically, at midcycle. We model acquisitions for Littelfuse in alignment with its strategy, but not to the full extent of management’s 6%-8% target. If management consistently hits its inorganic growth target, there would be upside to our growth forecast. We forecast 14% compound annual growth for Littelfuse’s electronics segment, driven by both passive products and semiconductors. We think vehicle electrification—both of the drivetrain and the cabin—will lead to content gains and drive 5% compound annual growth for transportation sales. In Littelfuse’s industrial segment, we expect that its focused bets in grid storage and data center power will drive double-digit growth organically.

We model non-GAAP operating margin to reach 23% in 2030 compared with a cyclically hampered 15% in 2025. Littelfuse’s margin can be cyclical, in line with its consumer and semiconductor-exposed electronics business. We believe a range between the low teens and the low 20% range is reasonable for cyclical peaks and troughs, with about 20% being our expectation at midcycle. Littelfuse now targets 30% to 35% incremental operating margin on growth, and our forecast is in line with this target through 2030.

Compared with Littelfuse’s 2030 target model as announced at its 2026 investor day, we come in line with organic growth, profitability, and cash generation targets. We come in below its inorganic growth target and thus model below its $4.5 billion revenue target in 2030. We model high-single-digit organic growth, adjusted EBITDA margin rising to 28%, and non-GAAP EPS surpassing $30.00 in 2030, all in line or above management’s model. We also model $800 million in free cash flow in 2030, with Littelfuse converting more than 100% of net income to cash flow, which are both in line with management’s model.

We assign Littelfuse a narrow economic moat rating based on switching costs. These lead to excess returns on invested capital that we expect to endure, more likely than not, for the next 10 years.

Littelfuse has a broad portfolio of circuit protection and power management products, along with sensors and power semiconductors, that it sells into the automotive, industrial, telecom, and consumer electronics end markets. Circuit protection products include fuses, breakers, diodes, relays, and other components that ensure the safe function of electrical systems by guarding against surges and overcurrent. Because Littelfuse’s SKUs are sub-components to larger electrical or electronic systems, the firm works closely with customers, acting as a design and engineering partner to integrate its passive components into OEMs’ end products. Littelfuse engineers begin working with its customers two to three years before production, to collaborate on designs and craft a manufacturing strategy.

We see switching costs as the primary moat source for advantaged components suppliers. Once a supplier's component is designed into an end application, it is likely to remain in for the product's entire lifecycle—ranging from five to seven years in cars and more than 10 years in some industrial applications. It is highly unlikely a customer would rip out and replace a component once designed in. Customer switching costs are tangible and include the time and cost of system redesign, retraining to learn and integrate the intricacies of a competitor’s proprietary technology, the lead time and expense of designing and testing the new system, the potential for disruption during production, and the purchase or relocation of heavy equipment or manufacturing.

Littelfuse primarily designs custom or semi-custom components into mission-critical systems like electric vehicle battery management systems, factory equipment, and power grids. These applications carry outsize costs to electrical failure that augment switching costs for Littelfuse. If there’s an electronic part failure in a consumer device like a smartphone or gaming console, it results in customer inconvenience and a potential loss of future sales for the original equipment manufacturer. If there’s a similar failure in a mission-critical system, the results can be catastrophic, such as driver or passenger injury or death, or widespread power outages with knock-on adverse effects. With these high costs to failure as a backdrop, OEMs for these applications are highly risk-averse and require components to work flawlessly, 100% of the time, no matter what the circumstance or context. As such, strong suppliers like Littelfuse build components to withstand harsh environments like heat, cold, water, snow, ice, sand, dirt, intense vibration, electromagnetic interference, and even explosions, depending on the application. In our view, Littelfuse has earned the trust of risk-averse OEM customers across verticals with a flawless operating history, and its customers have a very high bar for switching away from a trusted incumbent supplier for mission-critical applications.

We believe an additional facet of switching costs is derived from the highly integrated relationships between Littelfuse and its customers. Once Littelfuse wins a design, it takes on the role of a design partner, working with a customer to build out the system in question. This adds an incumbent advantage to Littelfuse. Both teams build relationships, share knowledge, and have experience from working on previous designs together. We contend that these close relationships add an additional layer of stickiness to mission-critical products. We think customers looking to build a new product iteration or model are more likely than not to choose incumbent Littelfuse and avoid the time, cost, and risk of using a new supplier.

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

We like Littelfuse’s profitability and ability to exert operating leverage during periods of strong demand.

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.

Littelfuse aims for acquisitions to fund half of its long-term growth. It may be forced to overpay for targets in a consolidating market or miss out on adjacent market opportunities.

Littelfuse has a small, niche semiconductor business and could struggle to gain material market share over larger and better-capitalized incumbents in the industry.

Littelfuse is prone to cyclicality that can lower revenue and compress margins, like seen in 2024, especially with meaningful exposure to distribution partners that manage inventory differently to end-market demand.