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home / news releases / BELFB - Bel Fuse Q1 Earnings: Great Results And Revised 2023 Outlook


BELFB - Bel Fuse Q1 Earnings: Great Results And Revised 2023 Outlook

2023-05-02 07:35:30 ET

Summary

  • Bel Fuse Inc. has rewarded shareholders with 155.40% in returns over the last year against the backdrop of a sluggish economy through its diversified portfolio.
  • Bel Fuse has beat EPS expectations for the last eight consecutive quarters and has raised its full year outlook for 2023.
  • Cautious of the impact of economic downturn and geopolitical factors that impact its China-related business operations.

Bel Fuse Inc. ( BELFB , BELFA ) caught my attention late last year due to its place in the 5G space, diverse portfolio of high-margin solutions and solid and consistent fundamentals irrespective of the challenging economic backdrop. The company has beaten EPS expectations for the last eight quarters and has most recently posted its Q1 2023 with an EPS surprise of $0.40 to reach $1.15.

Quarterly Earnings Surprise - Actual vs Consensus (SeekingAlpha.com)

This is a small-cap stock with a market cap of $523.60 million that has been improving its top and bottom line. It has very little short interest at 0.15% and an attractive FWD price-to-earnings ratio of 9.91 compared to the median of 19.00 in the information technology sector. The company has undergone leadership and strategic changes since 2021, resulting in record-breaking sales, increased margins, reduced leverage, and returns of 155.40% for investors in the past year. Based on its Q1 2023 performance the management team have raised their full year outlook for 2023. Therefore, I remain bullish on this stock as we see it benefit from strong demand and improved productivity.

Q1 2023 highlights

Bel Fuse is an electric component company catering to diverse end markets by providing solutions focused on three broad segments broken down according to the table below. We can see an upward trending growth pattern across all the businesses. The company has benefited from improved production and increased demand from its aerospace, military and e-mobility customers.

Segment overview (Investor presentation 2023)

After a solid financial finish in fiscal 2022, Bel Fuse has continued to strengthen its top and bottom line fundamentals going into Q1 2023. Net sales increased by 26.1% YoY to $172.3 million, gross profit margin increased from 25.0% to 31.1%, and adjusted EBITDA was $28.1 million, 16.3% of total sales versus 8.5% in Q1 2022.

Q1 2023 versus Q1 2022 (Belfuse.com)

Bel Fuse has experienced growth in all of its segments, with double-digit revenue growth in each except for magnetic solutions, which grew by 4.5%. The power solutions & protection segment is particularly significant, accounting for almost half of the total sales in Q1 2023. The company has benefited from strong demand in commercial aerospace, which grew by 135% YoY, and defence customers, which grew by 14% YoY. Additionally, Bel Fuse has improved cost management by streamlining its businesses. In the power solutions segment, the company has increased production as a result of the increased availability of critical components, which will continue to drive growth in the future.

Q1 2023 revenue and gross margin by segment re (Belfuse.com)

Looking at the company's balance sheet, we can see that they have $77.8 million in total cash and a credit facility with a balance of $87.5 million, which was recently reduced by $12.5 million. This is a significant improvement from the previous year. The current ratio of 2.95 and a quick ratio of 1.44 indicate that the company is sufficiently liquid. While free cash flow has been inconsistent, there have been positive results for the past four quarters, with a free cash flow of $13.1 million in Q1 of 2023. Based on their performance, management has a positive outlook for Q2 of 2023, expecting sales to be between $162 and $170 million.

Valuation

There has been little analyst interest in this small-cap stock, apart from Needham, which recently raised its price target from $40 to $50. The market reacted well to Bel Fuse's most recent earnings report, with the stock price increasing by 38.87% in the last five days and is still trading below its analyst price target of $50.50 . Furthermore, the stock has almost no short interest, double-digit YoY growth and has outperformed the S&P500 index consistently over the last year.

Quant Valuation (SeekingAlpha.com)

It has a low FWD price-to-earnings ratio of 9.91 compared to SeekingAlpha's information technology sector. It also has an attractively low price-to-sales ratio of 0.78 , indicating that investors are getting more than they are paying.

Risks

Bel Fuse is a small-cap stock typically prone to market fluctuations and, therefore, riskier as an investment choice. Furthermore, it is an international company dealing with geopolitical factors such as rising tensions between China and the USA, impacting its business and potential customer base. Changes in trade policies or increased sanctions could have profound implications for the company's future growth prospects, especially if we consider that nearly 70% of its business is in China.

Final thoughts

Bel Fuse has been performing well in terms of both revenue and profit for eight consecutive quarters, regardless of economic and geopolitical factors. The company is confident that it will continue to deliver strong results in the short term due to increased demand from major customers and improved availability of critical components while playing a major role in 5G connectivity across the globe in the long run. Although cautious of its international play field, the company has taken on key business strategies that have benefited its diverse range of customers. As a result, I remain optimistic about this exciting small-cap stock.

For further details see:

Bel Fuse Q1 Earnings: Great Results And Revised 2023 Outlook
Stock Information

Company Name: Bel Fuse Inc
Stock Symbol: BELFB
Market: NASDAQ
Website: belfuse.com

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