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Enersys (ENS) to Increase Thin Plate Pure Lead Capacity

Zacks Equity Research

Enersys ENS recently announced plans to increase its Thin Plate Pure Lead (TPPL) capacity over the upcoming three years. Per the company, its efforts of spending more than $100 million of additional capital and a projected 15% increase from persistent focus on Lean principles will expand TPPL capacity by more than $500 million on an annual basis.

In addition to these, the company intends to continue with efforts of commercialization for GreenSeal Bi-Polar battery technology. Notably, the technology was licensed from Advanced Battery Concepts, LLC (“ABC”). The GreenSeal technology enables Enersys to perform manufacturing process efficiently and reduces production costs.

The technology reduces lead content, increase cycle life by about 300% compared with standard lead batteries, boosts battery performance, enhances power density as well as lowers recharge time. Notably, the technology’s backward compatibility feature with most applications made it an appropriate choice for EnerSys.

Our Take

Of late, EnerSys’ motive power product line is experiencing weakness, primarily on account of ERP implementation issues in the American region. In addition, the company’s reserve power product line is experiencing weaker demand as several telecom customers in the United States deferred expenditure on legacy networks. We believe that persistent softness in any of the product lines business will weigh on the company's financials in the upcoming quarters.

Although the company has been making multiple long-term investments to boost growth, higher spending on new products development and system enhancements such as SAP, salesforce and success factors are also weighing on the bottom line. In the past six months, this Zacks Rank #5 (Strong Sell) stock has declined 20.5%, compared with the industry’s growth of 3.3%.

 

Moreover, rising cost of sales is a major concern for the company. Evidently, the metric increased 14.7% in the fourth quarter of fiscal 2019 (ended Mar 31, 2019), despite cost-reduction initiatives. Further, the company is exposed to fluctuations in commodity prices, especially that of lead.

Key Picks

Some better-ranked stocks from the Zacks Industrial Products sector are Chart Industries, Inc. GTLS, Eaton Corp. plc ETN and Roper Technologies, Inc. ROP. While Chart Industries sports a Zacks Rank #1 (Strong Buy), Eaton and Roper carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 16.56%.

Eaton outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 1.88%.

Roper exceeded estimates in each of the preceding four quarters, with an average positive earnings surprise of 8.43%.

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