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EnerSys' Alpha Group Buyout to Strengthen Earnings Prospects

EnerSys ENS recently announced that it has completed the acquisition of the Alpha Technologies Group of companies (the ‘Alpha Group’), for $750 million. The deal was originally announced on Oct 29, 2018.

Bellingham, Washington-based Alpha Group provides state-of-the-art energy solutions for telecom, broadband, industrial, renewable and traffic customers across the globe. In fiscal 2018 (ended June 2018), the company generated $591 revenues and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $67 million.

Inside the Headlines

EnerSys EnerSys believes the buyout will significantly help expand its product portfolio across the telecom, broadband, industrial and renewable markets. The acquisition will make EnerSys a fully-integrated energy and direct current power storage solution provider in the market. Additionally, EnerSys anticipates that this buyout will bring in meaningful economies of scale within its business and expand the company’s addressable market by nearly $20 billion.

EnerSys currently expects that the Alpha Group buyout will generate synergies of more than $25 million on an annualized basis and will also be accretive to its earnings in the upcoming quarters (eliminating one-time buyout related costs). The companyused shares worth $100 million and cash of $650 million for funding the transaction.

The cash portion of the acquisition was financed by EnerSys through an Increase Agreement, Incremental Term Loan Lender Joinder Agreement and First Amendment to Credit Agreement pursuant. In addition to this, the company utilized around $200 million cash balances to close the deal.

Our Take

We believe that the acquisition will boost EnerSys’ competency, moving ahead. The company is poised to grow on the back of strength in major businesses (like Motive Power), diligent cost-saving moves, pricing actions and strategic lean initiatives. Notably, the company currently anticipates adjusted earnings of $1.23-$1.27 per share in fiscal 2019 (ending March 2019), higher than the prior view of $1.14-$1.18 per share.

Per our estimates, EnerSys’ year-over-year earnings growth is currently pegged at 10.5% and 17% for fiscal 2019 and fiscal 2020 (ending March 2020). Over the past year, this Zacks Rank #2 (Buy) stock has rallied 17.4%, as against the 13.6% loss recorded by the industry it belongs to.

 

Other Stocks to Consider

Some other top-ranked stocks in the Zacks Industrial Products sector are listed below:

DXP Enterprises, Inc. DXPE sports a Zacks Rank of 1 (Strong Buy). The company pulled off a positive average earnings surprise of 112.62% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rexnord Corporation RXN carries a Zacks Rank #2, at present. The company delivered a positive average earnings surprise of 17.71% in the trailing four quarters.

Applied Industrial Technologies, Inc. AIT also holds a Zacks Rank of 2, currently. The company generated a positive average earnings surprise of 11.67% in the preceding four quarters.

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