Energizer Holdings, Inc.

ENR Details

Energizer Holdings, Inc. (NYSE: ENR) is one of the leading primary batteries and portable lighting products globally. Its key global brands include Energizer, EVEREADY, Rayovac, and VARTA.

Result Performance for the Third Quarter Ended 30 June 2021 (Q3FY21)

• The net sales stood at $721.8 million in Q3FY21, up 9.7% YoY owing to higher auto care demand in both geographical segments.
• Increased operating costs and a lower margin rate profile of its auto care business dragged the gross margin in Q3FY21.
• The gross margin reduced to 37.9% in Q3FY21 from 40.0% in Q3FY20. The adjusted gross margin decreased by 160 basis points to 39.2% in Q3FY21.
• Reported earnings per share of $0.24 in Q3FY21 include a $0.27 per share loss on extinguishment from debt refinancing. At the same time, the adjusted earnings per share grew by 48% YoY to $0.74 in Q3FY21.

Financial Snapshot (Source: Company Reports) 

Key Update

• As per the release dated 8 October 2021, the company would report Q4FY21 and FY21 before the market opens on 10 November 2021.

Outlook

The company has increased its FY21 forecast for net sales growth to 8-9% from 5-7% earlier, owing to distribution gains, increased demand, and favourable currency effects. In addition, it forecasted adjusted earnings per share to be in the range of $3.30- $3.50 and adjusted EBITDA in the range of $620-$640 million.

The company anticipates its adjusted gross margin rate to decrease by 80-110 basis points in FY21 versus the prior year primarily because of sustained inflationary cost pressures. However, this is likely to be nullified by further strides towards product management, synergies, and the effect of favourable currency. Further, it estimates its adjusted free cash flow to surpass $225 million in FY21.

Key Risks

The company is exposed to the risk of currency fluctuations, which may adversely hurt its financial performance. In addition, volatility in production costs, primarily the raw material prices, could erode its profit margins. Further, the risk of changes in the retail environment and consumer preferences also remain a significant concern. Moreover, it faces the risk of supply chain disruption due to its reliance on certain essential suppliers.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock is trading lower than the average of the 52-week high price of $52.8499 and the 52-week low price of $36.99, which indicates a good opportunity for accumulation.

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low double-digit (in % terms). Accordingly, a slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering a better current ratio at 1.70x in Q3FY21 versus the industry median of 1.40x and a higher fixed asset turnover ratio 1.49x in Q3FY21 versus the industry median of 1.36x.

Considering the higher battery demand, along with strong organic growth and decent outlook, we give a “Buy” recommendation on the stock at the closing market price of $37.27 per share, up by 0.22% as of 19^th October 2021. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

Disclaimer

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