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Forget EnerSys (ENS), Buy These 3 Manufacturing Stocks Instead
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This year has not been smooth sailing for EnerSys (ENS - Free Report) . The manufacturer of stored energy solutions for industrial applications has been severely impacted by persistent difficult operating conditions, owing to the supply-chain constraints and several other challenges.
EnerSys, which presently has a market capitalization of $3.3 billion, has failed to impress investors with its recent financial results. In the second quarter of fiscal 2022 (ended Oct 3, 2021), its adjusted earnings per share lagged the Zacks Consensus Estimate by 4.72%, while sales missed the same by 1.14%.
Image Source: Zacks Investment Research
Year to date, this Zacks Rank #5 (Strong Sell) stock has lost 5.9% against the Zacks Manufacturing – Electronics industry’s growth of 23.3%. The Zacks Industrial Products sector has rallied 11.7%, while the S&P 500 has jumped 26.9% over the same time frame.
The Zacks Consensus Estimate for EnerSys’ earnings for fiscal 2022 (ending March 2022) has trended down from $5.10 to $4.46 per share on two downward estimate revisions against none upward in the past 60 days. Over the same timeframe, the consensus estimate for fiscal 2023 (ending March 2023) earnings has trended down from $6.13 to $5.29 on two downward revisions against none upward.
What is Ailing the Company?
Over the past few months, EnerSys has suffered from persistent headwinds related to supply-chain constraints and cost inflation. Packaging shortages lowered its Specialty segment’s organic sales by 8% on a year-over-year basis in the fiscal second quarter. In the quarter, its gross margin decreased 260 basis points (bps) and the operating margin fell 160 bps. The company predicts shortages of product components (semiconductors and resins), high freight and tariffs, and labor constraints to continue to adversely impact its performance in the quarters ahead.
For third-quarter fiscal 2022 (ending December 2021), EnerSys anticipates adjusted earnings between 96 cents and $1.06 per share, suggesting a decline from earnings of $1.27 reported in the year-ago quarter.
The company’s high-debt profile poses a concern. In the last five fiscal years (2017-2021), EnerSys’ long-term debt (net of unamortized debt issuance costs) rose 10.5% (CAGR). Exiting the fiscal second quarter, its long-term debt (net of unamortized debt issuance costs) was $1,076 million, up 5.4% on a sequential basis.
EnerSys has also been making significant investments for expanding the NexSys Thin Plate Pure Lead product manufacturing capability for its NorthStar facilities over time. Although its investments are likely to be beneficial in the long run, high capital expenditure is likely to affect its short-term liquidity. The company’s capital expenditure was $70 million in fiscal 2021 (ended March 2021) and $34.6 million in the first half of fiscal 2022. For fiscal 2022, it expects to incur a capital expenditure of $100 million.
Given the company’s extensive geographic presence across the world, its operations are also prone to geopolitical risks and unfavorable movements in foreign currencies. For instance, in the fiscal second quarter, its sales declined 1% and 11% in the Americas, and Europe, the Middle East and Africa, respectively, on a sequential basis.
Our Recommendation
Amid such a scenario, we suggest considering three stocks with solid growth opportunities from the industry. The stocks either sport a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Emerson Electric Co. (EMR - Free Report) : Based in St. Louis, MO, the company offers a wide range of products and services to customers in the consumer, commercial and industrial markets. The Zacks Rank #2 stock has rallied 14.7% on a year-to-date basis. In the past 60 days, the Zacks Consensus Estimate for earnings has improved 7% for fiscal 2022 (ending September 2022) and 5.8% for fiscal 2023 (ending September 2023).
Emerson is anticipated to gain from strength across its medical, life science, food and beverage, and residential end markets. Also, the company is likely to benefit from a robust backlog level and acquisitions it has made over time. Buyouts had a positive contribution of 1% to EMR’s sales growth in fiscal 2021 (ended September 2021).
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SPX FLOW, Inc. (FLOW - Free Report) : The Charlotte, NC-based company specializes in providing engineered flow components, process equipment and turn-key systems. Year to date, shares of the Zacks Rank #1 company have rallied 49%. The Zacks Consensus Estimate for 2021 earnings has been revised 8.4% upward over the past 60 days, while the same for 2022 earnings has been increased 23.5%.
SPX FLOW is poised to benefit from the strong demand for its products and solutions, product development initiatives, and acquired assets in the quarters ahead. Also, FLOW’s solid backlog level, value-based pricing strategy, and supply-chain and productivity initiatives bode well.
Image Source: Zacks Investment Research
ESCO Technologies Inc. (ESE - Free Report) : The Saint Louis, MO-based company is a leading global provider of engineered products and systems for industrial and commercial industries. Although the Zacks Rank #2 stock has declined 15.1% year to date, it has shown positive momentum in the past three months with a 12.3% increase. In the past 60 days, the Zacks Consensus Estimate for its fiscal 2022 (ending September 2022) earnings has been revised 3.3% upward.
ESCO will benefit from solid backlog levels and strong order growth across aerospace, electric utility and test end-markets in the quarters ahead. Also, higher electromagnetic compatibility chamber projects in Asia and electromagnetic pulse filter sales in the Americas are likely to drive ESE’s performance. ESCO’s product development initiatives, acquired assets and healthy liquidity position also bode well.
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Forget EnerSys (ENS), Buy These 3 Manufacturing Stocks Instead
This year has not been smooth sailing for EnerSys (ENS - Free Report) . The manufacturer of stored energy solutions for industrial applications has been severely impacted by persistent difficult operating conditions, owing to the supply-chain constraints and several other challenges.
EnerSys, which presently has a market capitalization of $3.3 billion, has failed to impress investors with its recent financial results. In the second quarter of fiscal 2022 (ended Oct 3, 2021), its adjusted earnings per share lagged the Zacks Consensus Estimate by 4.72%, while sales missed the same by 1.14%.
Year to date, this Zacks Rank #5 (Strong Sell) stock has lost 5.9% against the Zacks Manufacturing – Electronics industry’s growth of 23.3%. The Zacks Industrial Products sector has rallied 11.7%, while the S&P 500 has jumped 26.9% over the same time frame.
The Zacks Consensus Estimate for EnerSys’ earnings for fiscal 2022 (ending March 2022) has trended down from $5.10 to $4.46 per share on two downward estimate revisions against none upward in the past 60 days. Over the same timeframe, the consensus estimate for fiscal 2023 (ending March 2023) earnings has trended down from $6.13 to $5.29 on two downward revisions against none upward.
What is Ailing the Company?
Over the past few months, EnerSys has suffered from persistent headwinds related to supply-chain constraints and cost inflation. Packaging shortages lowered its Specialty segment’s organic sales by 8% on a year-over-year basis in the fiscal second quarter. In the quarter, its gross margin decreased 260 basis points (bps) and the operating margin fell 160 bps. The company predicts shortages of product components (semiconductors and resins), high freight and tariffs, and labor constraints to continue to adversely impact its performance in the quarters ahead.
For third-quarter fiscal 2022 (ending December 2021), EnerSys anticipates adjusted earnings between 96 cents and $1.06 per share, suggesting a decline from earnings of $1.27 reported in the year-ago quarter.
The company’s high-debt profile poses a concern. In the last five fiscal years (2017-2021), EnerSys’ long-term debt (net of unamortized debt issuance costs) rose 10.5% (CAGR). Exiting the fiscal second quarter, its long-term debt (net of unamortized debt issuance costs) was $1,076 million, up 5.4% on a sequential basis.
EnerSys has also been making significant investments for expanding the NexSys Thin Plate Pure Lead product manufacturing capability for its NorthStar facilities over time. Although its investments are likely to be beneficial in the long run, high capital expenditure is likely to affect its short-term liquidity. The company’s capital expenditure was $70 million in fiscal 2021 (ended March 2021) and $34.6 million in the first half of fiscal 2022. For fiscal 2022, it expects to incur a capital expenditure of $100 million.
Given the company’s extensive geographic presence across the world, its operations are also prone to geopolitical risks and unfavorable movements in foreign currencies. For instance, in the fiscal second quarter, its sales declined 1% and 11% in the Americas, and Europe, the Middle East and Africa, respectively, on a sequential basis.
Our Recommendation
Amid such a scenario, we suggest considering three stocks with solid growth opportunities from the industry. The stocks either sport a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Emerson Electric Co. (EMR - Free Report) : Based in St. Louis, MO, the company offers a wide range of products and services to customers in the consumer, commercial and industrial markets. The Zacks Rank #2 stock has rallied 14.7% on a year-to-date basis. In the past 60 days, the Zacks Consensus Estimate for earnings has improved 7% for fiscal 2022 (ending September 2022) and 5.8% for fiscal 2023 (ending September 2023).
Emerson is anticipated to gain from strength across its medical, life science, food and beverage, and residential end markets. Also, the company is likely to benefit from a robust backlog level and acquisitions it has made over time. Buyouts had a positive contribution of 1% to EMR’s sales growth in fiscal 2021 (ended September 2021).
SPX FLOW, Inc. (FLOW - Free Report) : The Charlotte, NC-based company specializes in providing engineered flow components, process equipment and turn-key systems. Year to date, shares of the Zacks Rank #1 company have rallied 49%. The Zacks Consensus Estimate for 2021 earnings has been revised 8.4% upward over the past 60 days, while the same for 2022 earnings has been increased 23.5%.
SPX FLOW is poised to benefit from the strong demand for its products and solutions, product development initiatives, and acquired assets in the quarters ahead. Also, FLOW’s solid backlog level, value-based pricing strategy, and supply-chain and productivity initiatives bode well.
ESCO Technologies Inc. (ESE - Free Report) : The Saint Louis, MO-based company is a leading global provider of engineered products and systems for industrial and commercial industries. Although the Zacks Rank #2 stock has declined 15.1% year to date, it has shown positive momentum in the past three months with a 12.3% increase. In the past 60 days, the Zacks Consensus Estimate for its fiscal 2022 (ending September 2022) earnings has been revised 3.3% upward.
ESCO will benefit from solid backlog levels and strong order growth across aerospace, electric utility and test end-markets in the quarters ahead. Also, higher electromagnetic compatibility chamber projects in Asia and electromagnetic pulse filter sales in the Americas are likely to drive ESE’s performance. ESCO’s product development initiatives, acquired assets and healthy liquidity position also bode well.