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EnerSys (ENS) Displays Solid Prospects, Headwinds Persist

On Jan 11, we issued an updated research report on EnerSys ENS.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 21.6% compared with the industry’s growth of 25.1%.

Present Scenario

EnerSys is poised to benefit from strength in the transportation and defense businesses, 5G infrastructure build outs and strong demand for the NexSys Thin Plate Pure Lead (TPPL) products in the quarters ahead. Also, the company’s solid product portfolio and new product offerings, coupled with its investment in new and innovative technology, are likely to be beneficial.

Also, the company’s acquisition of Alpha Technologies Group of Companies (December 2018) has strengthened its position in telecom, broadband, industrial and renewable markets. In addition, the buyout of NorthStar (October 2019) has enhanced its production capacities for TPPL products. Notably, the buyouts had a positive impact of 4% on EnerSys’s net sales in the second-quarter fiscal 2021 (ended Oct 4, 2020).

In addition, it remains committed to rewarding shareholders handsomely through dividend payments. In the first half of fiscal 2021, EnerSys used $14.9 million for paying out dividends. Exiting the fiscal second quarter, its operating cash flow was $217.3 million, reflecting an increase from $105.1 million in the year-ago quarter. Further improvement in cash flows is likely to effectively support its capital-allocation strategies.

However, weakness across the company’s motive power business on account of low demand environment remains concerning for its top line in the quarters ahead. Notably, based on its expected low future demand for motive power batteries, in November 2020, EnerSys agreed to close its motive power facility in Hagen, Germany.

Moreover, the company’s high-debt profile poses a concern. For instance, in the last five fiscal years (2016-2020), its long-term debt (net of unamortized debt issuance costs) rose 17.5% (CAGR). Notably, the metric was $1,039.2 million at the end of the fiscal second quarter. Further, an increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Emerson Electric Co. EMR, Franklin Electric Co., Inc. FELE and SPX FLOW, Inc. FLOW, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Emerson delivered a positive earnings surprise of 16.01%, on average, in the trailing four quarters.

Franklin Electric delivered a positive earnings surprise of 12.82%, on average, in the trailing four quarters.

SPX FLOW delivered a positive earnings surprise of 146.55%, on average, in the trailing four quarters.

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