Energizer Holdings Inc

ENR Details

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

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

Increase in Net Sales by 16.7%: Higher auto care demand in both geographical segments  contributed to a net sales growth of 9.7% to $721.8 million.

Gross Margin Reduced to 37.9%: It witnessed a decline in gross margin to 37.9% compared to 40.0% in the PCP. Adjusted gross margin reduced to 39.2%, down 160 basis points from the prior year. Increased operating costs, as well as a lower margin rate profile of its auto care business, dragged down the gross margin during the period. However, these were partially offset by synergies of around $14 million along with favorable currency exchange rates.

Reported EPS at $0.24: It has reported earnings per share of $0.24 that includes a $0.27 per share loss on extinguishment from debt refinancing. However, the adjusted earnings per share grew by 48% YoY to $0.74.

Financial Snapshot (Source: Company Reports)

Declared $75 Million Accelerated Share Repurchase Program

The company, on 11 August 2021, provided a market update on entering into  an agreement with JPMorgan Chase, National Association ("JPM") to repurchase an aggregate of $75 million of its common stock in an accelerated share repurchase program. The company would utilise its available cash on hand and revolver borrowings to finance the ASR program.

Dividend Declaration

The company, on 2 August 2021,  declared a quarterly dividend of $0.30 per share of common stock. It also declared a quarterly dividend of $1.875 per share of 7.50% Series A mandatory convertible preferred stock.

Outlook

The company has raised its FY21 outlook for net sales growth to 8% to 9% from 5% to 7% earlier owing to distribution gains, elevated demand, and favorable currency impacts. However, it has reaffirmed its outlook for adjusted earnings per share of $3.30 to $3.50 and adjusted EBITDA of $620 to $640 million.

ENR expects its adjusted gross margin rate to reduce by 80 to 110 basis points in FY21 compared to the prior year due to the impact of sustained inflationary cost pressures. However, this is likely to be offset by additional productivity management efforts, synergies, and the impacts of favorable 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. 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. Moreover, it faces the risk of supply chain disruption due to its reliance on certain significant suppliers.

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 reflects a rise of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering sustained inflationary cost pressures and weak profitability in Q3FY21.

For the purposes of relative valuation, peers like Newell Brands Inc (NWL.OQ), Church & Dwight Co Inc (CHD.N), to name a few have been considered.

Considering the aforementioned factors along with higher battery demand, steady strong organic growth, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $38.80 per share, down by 2.98% on 23^rd August 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.

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