ENR – Cheap for a Reason

Energizer fits the profile of a stock, at the very least, that we do not want to own. We expect the stock to underperform as competitive pressures continue to impact both the personal care and home product segments of the company’s business. Sluggish top-line performance, particularly in Personal Care, is weighing on expectations as cost savings are being pulled forward to maintain earnings growth.

 

Overview: Energizer is one of the largest manufacturers and marketers of primary batteries, portable lighting and personal care products in the wet shave, skin care, feminine care, and infant care categories. The company’s exposure to these respective product categories is detailed in the chart below.

 

ENR – Cheap for a Reason - enr rev by category

 

 

Fundamental Outlook: Energizer is widely known for its battery and lighting products but the company derives 54% of its revenue and 51% of its operating profit from the personal care category which has seen a deceleration in trends over recent months. The company has grown revenues and income at 8% and 26%, respectively, on a blended trailing-twelve month basis.

 

Personal Care: In the most recent quarter, Hydro Disposables offset sharp declines in U.S. men’s razors and shave prep sales as negative impact of promotional environment has created a more difficult competitive environment.

 

Household Products: Distribution losses at two U.S. retailers will impact numbers starting in 4Q, exacerbating the impact of declining category sales of roughly 2% and other company-specific restructuring-related factors.

 

 

Conclusion: Going forward, earnings targets may be met as cost savings are made but we believe the stock’s multiple is unlikely to appreciate meaningfully until investors see evidence of an acceleration in sales growth. The stock is currently trading at 13.7x forward earnings, which is close to the high-end of its range over the past four years. The bull case seems to be that earnings should grow as cost savings are implemented and, as a result, the multiple should expand. This thesis strikes us as similar to the bull case on KMB. In that instance, sluggish revenue growth has dissuaded investors despite cost savings driving earnings to meet expectations. As investors increasingly look for growth over yield, we expect ENR’s performance to underperform its peer group. We favor EL on the long side, at current levels, and would continue to be short KMB.

 

ENR – Cheap for a Reason - KMB ENR eps

 

ENR – Cheap for a Reason - enr levels

 

 

Rory Green

Senior Analyst


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more