Generac Holdings Inc
GNRC Details
Generac Holdings Inc (NYSE: GNRC) is involved in the manufacturing of the widest range of power products in the marketplace that comprises portable, residential, commercial, and industrial generators. The company is also engaged in the designing and manufacturing manual and fully automatic transfer switches and accessories for backup power applications up to 2 MW.
Q3FY21 Results Performance (For the Quarter Ended 30 September 2021)
- The company has reported an increase in its net sales by 34% to reach a record $943 million during the period compared to $701 million in the pcp.
- Core sales growth, without considering the impact of acquisitions and foreign currency, stood at approximately 30%.
- Net income attributable to the company increased to $132 million, or $1.93 per share from $115 million, or $1.82 per share in the pcp.
- Free cash flow stood at $42 million compared to $148 million in the pcp. The decline in free cash flow was mainly on account of higher working capital investment and capital expenditures during the period, which was partly offset by an increase in operating earnings.
Source: Company Reports, Analysis by Kalkine Group
Recent Update
- As per the press release dated 26 January 2022, Generac Grid Services declared that Southern California Edison has chosen it as one of the Virtual Power Plant (VPP) providers for the company's Power Flex program. Notably, Generac Grid Services is a subsidiary of Generac Power Systems.
- On 1 December 2021, the company declared the closing of the strategic acquisition of ecobee Inc. This acquisition will aid in further developing suite of offerings around an intelligent home energy ecosystem.
Key Risks
The company’s results are exposed to the risks of fluctuations in interest rates, foreign currency exchange rates, commodities, product mix, and regulatory tariffs. Failure to successfully integrate the acquisitions also remains a potential risk.
Outlook
The company has maintained its FY21 net sales growth guidance range of around 47 to 50% compared to the prior year after considering around 5% of favorable impact from acquisitions and foreign currency. Although the company continues to witness an exceptional demand environment, further supply chain constraints, escalating logistics challenges, and rising input costs are increasingly putting pressure on margins.
Further, coupled with the impact of recent acquisitions, GNRC has guided its net income margin, before deducting for non-controlling interests, to be around 15.0% for FY21 compared to its earlier guidance of between 15.5% to 16.0%.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the reaffirmation of the net sales growth guidance for FY21 and the continued exceptional demand environment.
Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $265.190 per share, down 4.03% on 26th January 2022.
Energizer Holdings Inc
ENR Details
Energizer Holdings Inc (NYSE: ENR) is one of the leading manufacturers of primary batteries and portable lighting products globally. Its key global brands include Energizer®, EVEREADY®, Rayovac®, and VARTA®.
Q4FY21 Result Performance (For the Quarter Ended 30 September 2021)
- The company has registered an increase in net sales to $766.0 million from $763.0 million in the prior year period driven by strong auto care performance.
- In FY21, net sales surpassed $3.0 billion, up 10.1% from the prior year, supported by its sixth consecutive year of organic growth.
- Gross margin percentage on a reported basis during the quarter stood at 36.5% compared to 36.9% in the pcp. In FY21, the gross margin stood at 38.4% against 39.4% in the prior year.
- Notwithstanding the inflationary cost challenges, the company delivered diluted net earnings per share of $1.14 and adjusted earnings per share of $0.79 in Q4FY21, up 34% from the prior year.
Source: Company Reports, Analysis by Kalkine Group
Recent Update
- In the press release dated 7 January 2022, the company mentioned that it will report its Q1FY22 results before the market opens on February 7, 2022.
- The company, on 15 November 2021, announced that its board of directors declared a quarterly dividend of $0.30 per share of common stock. Further, the board of directors of the company has declared a quarterly dividend of $1.875 per share of 7.50% Series A mandatory convertible preferred stock.
Outlook
The company expects demand for its products to normalize going forward. However, ENR expects the inflationary pressures to continue throughout fiscal 2022. The company has executed or have planned pricing across 85% of its business and will remain focus on further pricing and cost reduction efforts. ENR forecasts gross margin headwinds of around 150 basis points based on current rates and assumptions.
Key Risks
The company is exposed to the risk of currency fluctuations, which may adversely hurt its financial performance. 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 major concern. Also, the current operating environment is volatile as well as the company would remain focused towards offsetting the headwinds via additional pricing as well as cost reduction opportunities.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
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). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the decent outlook as well as higher battery demand.
For the purpose of relative valuation, peers like Kimberly-Clark Corp (KMB.N), Reynolds Consumer Products Inc (REYN.OQ), among others have been considered.
Considering the aforementioned factors, along with its pricing action and cost reduction initiatives, we give a “Buy” recommendation on the stock at the closing market price of $37.600 per share, down by 2.46% on 26th January 2022.
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
Note: GNRC, and ENR are a part of Global Fully Charged Portfolio
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