EnerSys (ENS) Exhibits Strong Prospects, Headwinds Persist

EnerSys ENS stands to benefit from its exposure in diverse end markets, which allows it to neutralize risks associated with a single market with strength across others. In fourth quarter of fiscal 2021 (ended March 2021), the company’s organic revenues grew 4% year over year, on the back of strong end markets in Asia and recovery in end markets across North America and the Middle East and Africa. Improving demand environment across aerospace & defense and lithium-based battery technology end markets bode well for the company.

The company believes in strengthening its businesses through addition of assets. The acquisition of NorthStar (October 2019) has strengthened its position as a provider of the NexSys Thin Plate Pure Lead products. In fiscal 2021 (ended March 2021), the acquisition boosted its revenues by 2%.

It focuses on rewarding shareholders through dividend payments. In fiscal 2021, EnerSys used $29.8 million for paying out dividends. In fiscal 2021, its operating cash flow was $358.4 million, reflecting an increase of 41.4%, on a year-over-year basis. Further improvement in cash flows is likely to effectively support the company's capital-allocation strategies.

However, the company has been experiencing persistent weakness across its Motive Power segment over the past few quarters, owing to the coronavirus outbreak-related challenges. Based on low future demand for motive power batteries, in November 2020, EnerSys approved a plan to close its motive power facility in Hagen, Germany.

Its high-debt profile poses a concern as well. In the last five fiscal years (2017-2021), its long-term debt (net of unamortized debt issuance costs) rose 10.5% (CAGR). At the end of fiscal 2021, the metric remained high at $969.6 million. Any further increase in debt levels can raise the company’s financial obligations.

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In the past six months, this Zacks Rank #3 (Hold) stock has returned 7.8% compared with the industry’s growth of 6%.

Stocks to Consider

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

Eaton delivered an earnings surprise of 15.20% in the last reported quarter.

Franklin Electric delivered an earnings surprise of 51.28% in the last reported quarter.

SPX FLOW delivered an earnings surprise of 84.85% in the last reported quarter.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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