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Enerpac (EPAC) Exhibits Strong Prospects Despite Headwinds

Enerpac Tool Group Corp. EPAC continues to benefit from its presence in diverse end markets, which allows it to offset risks associated with a single market. From the vertical market prospective, investments in maintenance are benefiting rail in the America region. The oil & gas end market in the Europe region is gaining on high oil & gas prices. Also, the wind market is driven by the need to shed its dependence on Russian oil & gas imports.

In the Asia Pacific region, mining remains positive on account of increased demand across the region for raw materials and shipbuilding activity, aided by the transportation of liquefied natural gas. Also, government spending on capital projects, particularly in Australia, is supporting infrastructural growth in the area.

Enerpac’s focus on product innovation and business expansion through the addition of assets proves to be advantageous. For fiscal 2023 (ending August 2023), EPAC anticipates revenues of $565-$585 million, with core growth of 3-6%. Also, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) are anticipated in the range of $113-$123 million, including an ASCEND EBITDA benefit of $12 to $18 million. Core sales for Industrial Tools & Services’ products are anticipated to grow in the mid-single digit percentage in fiscal 2023.

Enerpac’s measures to reward its shareholders through share repurchases are impressive. In March 2022, EPAC announced a share repurchase program without any expiry date that authorizes it to buy back up to 10 million shares of its common stock. It bought back shares worth $39 million during the fiscal fourth quarter (ended August 2022).

Among other companies in the Industrial Products sector, A. O. Smith Corporation AOS utilizes its cash flow to reward its shareholders through dividend payouts and share-repurchase programs.

A. O. Smith paid out dividends worth $87.9 million, up 4.8% year over year and bought back shares worth $22.9 million in the first six months of 2022. For the ongoing year, AOS anticipates repurchasing shares worth approximately $400 million.

IDEX Corporation IEX also remains committed to maximizing its shareholder returns, leveraging a strong balance sheet and cash flows. IDEX paid out dividends worth $86.9 million during the first six months of 2022.

IDEX also repurchased shares worth $110.4 million in the same period. It’s worth noting that IEX’s board announced an 11% hike in its quarterly dividend rate in May 2022.

Coming back to EPAC, on the flip side, it is facing cost issues and supply-chain bottlenecks. In the fiscal fourth quarter, EPAC’s selling, administrative and engineering expenses increased 20.8% year over year. Supply-chain and logistics challenges as well as raw material and manufacturing cost-inflation remain a concern for Enerpac in the near term.

EPAC is susceptible to risks from international operations with its exposure in Asia, Europe, the United States, the Middle East and other regions. In fourth-quarter fiscal 2022, foreign exchange woes had an adverse impact of 6% on its revenues. A decline in the value of the local currencies of foreign markets relative to the U.S. dollar might affect EPAC’s top line in the quarters ahead.

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