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Enersys (ENS) Displays Bright Prospects, Headwinds Persist

Zacks Equity Research

On May 10, we issued an updated research report on Enersys ENS.

Over the past month, this Zacks Rank #3 (Hold) stock has declined 4.3% compared with industry’s fall of 3.9%.

Existing Scenario

Enersys has been gaining from its solid product portfolio, favorable pricing and higher sales from major businesses (like motive power). Also, the company has taken steps to strengthen American and Asian operations, and reserve power business in Europe, the Middle East and Africa. These restructuring actions are likely to benefit the company’s operational performance in the upcoming quarters. Notably, its sales are estimated to grow 10% year over year in fiscal 2019.

Moreover, Enersys intends to strengthen its competency on the back of business acquisitions. The buyout of Alpha Technologies Group of Companies (completed in December 2018) will enhance the company's product portfolio across the telecom, broadband, industrial and renewable markets. Also, the company anticipates realizing synergies of more than $25 million on an annualized basis. In addition, earnings accretion of 6 cents per share — partially offset by 3 cents of dilution caused by share issuances — is anticipated in fiscal 2019.

Further, the company remains highly committed toward increasing shareholders’ wealth through share repurchase programs and paying dividends. In this regard, in the first three quarters of fiscal 2019, it used $22.3 million for paying dividends to shareholders and $25 million for purchasing treasury stocks.

However, rising cost of sales has been a major concern for EnerSys over the past several quarters. In the third quarter of fiscal 2019, the company’s cost of sales increased 4.8% on a year-over-year basis despite cost-reduction initiatives. Notably, commodity inflation hurt gross margins by around 120 basis points. Escalating costs may continue affecting the company's margins in the upcoming quarters.

Key Picks

Some better-ranked stocks in the same space are iRobot Corporation IRBT, DXP Enterprises, Inc. DXPE and Dover Corporation DOV. While iRobot sports a Zacks Rank #1 (Strong Buy), DXP Enterprises and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot surpassed estimates in each of the trailing four quarters, the average being 94.52%.

DXP Enterprises exceeded estimates thrice in the trailing four quarters, the average being 48.47%.

Dover surpassed estimates in each of the trailing four quarters, the average being 8.61%.

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