EnerSys ENS has failed to impress investors with its recent operational performance amid the coronavirus outbreak-led end-market challenges and other woes. These are expected to adversely impact its earnings.

The Zacks Rank #4 (Sell) company has a market capitalization of $4 billion. Over the past six months, it has gained 14.5% compared with the industry’s growth of 22%.

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Let’s delve into the factors that might continue to take a toll on the firm.

Weak Motive Power Segment: EnerSys has been experiencing persistent weakness across its Motive Power segment over the past few quarters. In fourth-quarter fiscal 2021 (ended March 2021), the segment’s revenues declined 5.7% on a year-over-year basis. In the near term, challenges related to the coronavirus outbreak might continue to adversely impact the segment’s top-line performance. It’s worth mentioning here that in November 2020, the company approved a plan to close its motive power facility in Hagen, Germany, based on low future demand for motive power batteries.

High Debt Level: The company’s high-debt profile poses a major concern. Notably, in the last five fiscal years (2017-2021), EnerSys’ long-term debt (net of unamortized debt issuance costs) increased 10.5% (CAGR). Exiting fiscal 2021, its long-term debt (net of unamortized debt issuance costs) remained high at $969.6 million. Also, the company currently seems to be more leveraged than the industry. The stock’s long-term debt-to-capital is 38.6%, higher than the industry’s 27.1%.

High Capital Expenditure: The company has been making significant investments for expanding the NexSys Thin Plate Pure Lead products manufacturing capability for its NorthStar facilities over the past few quarters. Although its investments are likely to be beneficial in the long run, high capital expenditure incurred is likely to affect its short-term liquidity. Notably, in fiscal 2021, the company’s capital expenditure totaled $70 million.

Forex Woes: Given its widespread presence in international markets, the company is exposed to unfavorable foreign currency movements. Fluctuations in foreign exchange rates might affect its top line in the quarters ahead.

Estimate Trend: In the past seven days, the company's earnings estimates have been lowered 2.4% for the first quarter of fiscal 2022 (ending June 2021), and the same for the fiscal second quarter (ending September 2021) has gone down 0.8%.

Key Picks

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

AZZ delivered an earnings surprise of 5.08% in the last reported quarter.

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.

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