Methode Electronics (MEI): Earnings Volatility, Strategic Turnaround, and Buy Potential Amid EV Growth

Methode Electronics (MEI) has long been a key player in the automotive electronics sector, but its Q2 2025 earnings outlook reveals a complex interplay of challenges and opportunities. The company reported net sales of $293 million for the fiscal second quarter of 2025, driven by robust demand for power distribution products in data centers and electric vehicles (EVs), as well as growth in Europe from automotive program launches [6]. However, analysts anticipate a year-on-year revenue decline of 16.1% for Q2 2025, projecting revenue at $217 million and an adjusted loss of -$0.25 per share [1]. This volatility underscores the tension between MEI’s strategic pivot to high-growth markets and its ongoing struggles in traditional automotive segments.

Earnings Volatility and Operational Improvements

MEI’s Q2 2025 results reflect a mixed performance. While the industrial segment saw a 9.1% increase in net sales to $131.4 million, driven by data center power distribution products, the automotive segment experienced a 5.7% decline in net sales to $145.5 million, primarily due to reduced volume in Asia from the roll-off of an EV lighting program [1]. Despite these headwinds, the company raised its adjusted pre-tax income guidance for fiscal 2025, citing operational improvements such as cost reductions and manufacturing realignments [2]. Notably, MEI generated $26.3 million in free cash flow during Q4 2025, the highest since fiscal 2023, and reduced both total and net debt [1].

The company’s strategic initiatives, including relocating manufacturing operations to lower-cost regions and reallocating EV resources to data center opportunities, aim to offset short-term declines. MEI also highlighted over 30 new program launches in fiscal 2025, many EV-related, to drive future revenue growth [5]. However, challenges persist, including reduced demand from key customers like Stellantis and delays in program launches [4].

EV Exposure and Industry Positioning

Electric and hybrid vehicle applications accounted for 20% of MEI’s Q2 2025 net sales, a figure the company expects to grow as EV adoption accelerates [2]. The global automotive electronics market is projected to expand at a 6.9% CAGR through 2025, driven by EV adoption and advanced technologies [4]. MEI’s focus on power distribution systems for EVs and data centers positions it to benefit from this trend, though its performance lags behind peers like Delphi and Continental AG.

For instance, Continental AG reported a 7% EBIT margin in Q2 2025, bolstered by cost-saving measures and pricing negotiations, while Magna International saw a 3% decline in Q2 sales due to reduced light vehicle production [5]. Delphi Automotive, meanwhile, is advancing its EV strategy through software-hardware integration for smart connected vehicles [6]. MEI’s reliance on legacy automotive programs and its smaller scale compared to these peers highlight structural challenges.

Valuation Metrics and Analyst Outlook

MEI’s valuation appears undervalued relative to peers, with a price-to-book ratio of 0.39 and a forward P/E ratio of 39.27 [3]. Analysts have set a median price target of $10.50, implying a 58.4% upside from its current price of $6.63 [2]. However, the stock’s 52-week decline of 25.25% reflects concerns over earnings volatility and debt levels. Baird’s Luke Junk maintains a “Hold” rating with a $7.00 price target, while Sidoti & Co.’s John Franzreb upgraded to “Buy” with a $14.00 target, citing long-term EV growth potential [3].

Strategic Turnaround and Buy Potential

MEI’s strategic turnaround hinges on its ability to capitalize on data center growth while navigating EV sector headwinds. The company’s pivot to power distribution systems for data centers—where sales exceeded $80 million annually—demonstrates a viable path to diversification [1]. Additionally, its pipeline of 30+ new programs in 2025 and 2026 could offset legacy program roll-offs [5]. However, execution risks remain, including supply chain volatility and customer concentration.

For investors, MEI presents a speculative opportunity. Its low valuation and exposure to EV growth offer upside potential, but its operational challenges and debt load warrant caution. The stock’s current “Deep Value” classification [5] suggests it may appeal to risk-tolerant investors willing to bet on its strategic realignment.

Conclusion

Methode Electronics stands at a crossroads, balancing near-term earnings pressures with long-term growth in EV and data center markets. While its operational improvements and strategic initiatives are promising, the company must demonstrate consistent execution to justify its valuation. For now, a “Moderate Buy” rating seems appropriate, with a focus on monitoring Q2 2025 results and the progress of its new program launches.

Source:
[1] Methode Electronics, Inc. Reports Fiscal 2025 Second Quarter Financial Results [https://ir.methode.com/news/news-details/2024/Methode-Electronics-Inc.-Reports-Fiscal-2025-Second-Quarter-Financial-Results/default.aspx]
[2] Methode Electronics (MEI) Earnings Date and Reports 2025 [https://www.marketbeat.com/stocks/NYSE/MEI/earnings/]
[3] MEI Stock Forecast 2026 - Methode Price Targets & [https://tickernerd.com/stock/mei-forecast/]
[4] Automotive Electronics Global Market Report 2025 [https://www.thebusinessresearchcompany.com/report/automotive-electronics-global-market-report]
[5] Automotive Technology Insight | Forecasts | Industry News [https://autotechinsight.spglobal.com/news?fs_tags[10][]=5226]
[6] METHODE ELECTRONICS INC Earnings Call Transcript [https://www.stockinsights.ai/us/MEI/earnings-transcript/fy25-q2-9158]