|Shares Out. (in M):||63||P/E||14.2x||15.4x|
|Market Cap (in $M):||6,100||P/FCF||10.6x||14.2x|
|Net Debt (in $M):||1,330||EBIT||762||680|
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ENR Write Up
October 30, 2013
Recommendation: Sell short
Current Price: $98.92
Target Price: $76
Bull Price: $115
Market Cap: $6.1B
Liquidity: 590k shares or $63MM per day
Energizer Holdings (ENR) is a 2000 spin out of Ralston-Purina. The company has two divisions: Household Products (primarily batteries) and Personal Care (primarily wet shave, along with feminine care, suntan lotion, wet wipes, etc.). In the fall of 2012, ENR announced a large corporate restructuring with the aim of ~$150MM a year in permanent cost savings. On July 31st, 2013, ENR announced the acquisition of JNJ’s feminine care division for $185MM.
ENR is a low quality business. Batteries, which are ~45% of EBIT, are in secular decline and facing an expanding promotional competitor (SPB’s Rayovac). Wet shave, which is approximately 30-40% of EBIT, is lapping a major product launch and facing a larger, promotional competitor (PG’s Gillette). In response to persistent negative sales in batteries, ENR announced a large restructuring plan with $150MM in project permanent savings. Despite the failure of ENR’s similar 2011 restructuring plan, analyst/bulls have factored a near complete success into their estimates.
Further, on ENR’s Q3 call, management announced the loss of two key battery customers which combined represent a 6% loss in sales on top of -2% industry trends, implying a tough Q4 down >10% and 2014 battery sales down 6-8%. Despite this significant headwind, ENR guided 2014 EPS up mid-single digits, which implies flat battery EBIT and makes 2014 estimates entirely dependent upon restructuring success. Given ENR’s past failed restructuring and aggressive 2014 guidance, I believe ENR is likely to miss guidance and its present valuation does not adequately discount this risk. In addition, management has recently been consistent sellers after several years of little action.
Q4 and 2014 Estimates
Personal Care/Wet Shave
Management Caliber/Stock Sales
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