On Jul 8, we issued an updated research report on Enersys ENS.
Over the past six months, the company has declined 16.7% against the industry’s growth of 5.9%.
Read on to find the major factors affecting this Zacks Rank #4 (Sell) company’s prospects, and why it may be prudent to avoid it at the moment.
Rising cost of sales has been a major concern for EnerSys over the past several quarters. The metric recorded an increase of 14.7% in the fourth quarter of fiscal 2019 (ended Mar 31, 2019), despite cost-reduction initiatives. Further, in the quarter, EnerSys’ operating margin decreased 550 basis points year over year to 4.4% due to 35.4% increase in operating expenses.
Also, the company’s reserve power product line is experiencing weaker demand as several telecom customers in the United States deferred spending on legacy networks. In addition, its motive power product line is experiencing ERP implementation issues in the Americas region. We believe, persistent softness in any of these product lines business will weigh on the company's financials in the quarters ahead.
Moreover, a highly leveraged balance sheet can inflate the company’s financial obligations, and subsequently hurt profitability. Notably, in the last five fiscal years (2015-2019), EnerSys’ long-term debt jumped 14.5% (CAGR), while the metric increased 67.6% to $972 million on a year-over-year basis at the end of fiscal 2019.
Further, the company’s earnings estimates have been trending south over the past couple of months, with two downward estimate revisions for fiscal 2020 (ending Mar 31, 2020). Notably, the Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $5.81, lower than $6.12 estimated 60 days ago.
Stocks to Consider
Some better-ranked stocks in the Zacks Industrial Products sector are Roper Technologies, Inc. ROP, Tetra Tech, Inc. TTEK and Brady Corporation BRC. While Roper sports a Zacks Rank #1 (Strong Buy), Tetra Tech and Brady carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Roper delivered average earnings surprise of 8.43% in the trailing four quarters.
Tetra Tech pulled off average positive earnings surprise of 8.22% in the trailing four quarters.
Brady delivered average earnings surprise of 9.22% in the trailing four quarters.
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