We issued an updated research report on EnerSys ENS on Dec 28.
This energy solutions provider, especially for industrial use, currently carries a Zacks Rank #2 (Buy). It has $3.3 billion market capitalization and a favorable VGM Score of B.
Let’s delve deeper and discuss why investors should consider adding EnerSys’ stock to their portfolio.
Financial Performance & Outlook: EnerSys’ financial performances have been impressive in three of the last four quarters, with an average earnings surprise of 2.83%. Notably, the company delivered earnings surprise of 0.86% for the last quarter (ended Sep 30, 2018). On a year-over-year basis, the bottom line increased 11.4% backed by core sales growth.
In the quarters ahead, EnerSys’ top-line growth will be supported by sturdier sales secured from major businesses (like motive power), solid product portfolio and favourable pricing. This, along with restructuring moves and benefits secured from the enterprise resource planning system, will likely drive profitability.
For the third quarter of fiscal 2019 (ending March 2019), EnerSys anticipates adjusted earnings of $1.23-$1.27 per share. This projection — excluding the impact of 25 cents per share of charges related to the Alpha buyout and some restructuring activities — is higher than the $1.17 earnings recorded in the fiscal second quarter. Gross margin in the fiscal third quarter is predicted to be within the 25-26% range versus 24.4% in the fiscal second quarter.
Tactical Initiatives: EnerSys’ business streamlining and cost-saving initiatives are proving advantageous. The company, through its cost-saving moves, outpaced expenses incurred on new-product development and system enhancements in the fiscal second quarter. By fiscal 2021, the company aims at improving its operating margins by 200 basis points.
In addition, EnerSys’ policy of rewarding shareholders handsomely through dividend payments keeps momentum healthy investors. Here its worth noting that the company used $14.7 million for paying dividends n the first half of fiscal 2019.
Buyouts: Acquisitions can easily help penetrate unexplored markets, enhance product portfolio and expand geographical footprints. EnerSys, in December 2018, completed the acquisition of Alpha Technologies Group of Companies. Alpha Group primarily engages in providing state-of-the-art energy solutions for telecom, broadband, industrial, renewable and traffic customers across the globe.
The buyouts are anticipated to expand EnerSys’ product portfolio across the telecom, broadband, industrial and renewable markets and will also make it a fully-integrated energy and direct current power storage solution provider in the market. Synergies in excess of $25 million are anticipated on an annualized basis, while earnings accretion is predicted in the upcoming quarters.
Share Price Performance & Earnings Estimates: Impressive financial performance and optimism about the future prospects supported positive sentiment on the stock. It’s worth noting here that the company’s share price has yielded 2% return over the past six months. This share price gain is better than the industry’s 14.7% decline during the same period.
Moreover, EnerSys’ earnings estimates for fiscal 2019 (ending March 2019) have been increased by two brokerage firms in the past 60 days. Currently, the Zacks Consensus Estimate for earnings per share is pegged at $5.11, reflecting growth of 2.8% from the tally recorded 60-days ago. The estimate for fiscal 2020 (ending March 2020) remained unchanged at $6.03 during the same time frame. Further, these earnings estimates represent year-over-year growth of 9.9% for fiscal 2019 and 18% for fiscal 2020.
Enersys Price and Consensus
Enersys Price and Consensus | Enersys Quote
Over the next three to five years, the company’s earnings are projected to be up roughly 10%.
Others Stocks to Consider
As discussed above, EnerSys seems to be a suitable investment choice for investors seeking exposure in the machinery space. Some other top-ranked stocks in the Zacks Industrial Products sector are DXP Enterprises, Inc. DXPE, EnPro Industries, Inc. NPO and Rexnord Corporation RXN. While DXP Enterprises and EnPro Industries sport a Zacks Rank #1 (Strong Buy), Rexnord carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past 60 days, bottom-line estimates for the three stocks improved for the current year. Furthermore, positive earnings surprise for the last quarter was 17.95% for DXP Enterprises, 23.64% for EnPro Industries and 12.20% for Rexnord.
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