We came across a bearish thesis on Energizer Holdings, Inc. (ENR) on Stock Picker’s Journey’s Substack by Gregg Jahnke. In this article we will summarize the bears’ thesis on ENR. Energizer Holdings, Inc. (ENR) share was trading at $29.29 as of Sept 19th.
A close-up of a battery cell being assembled with intricate precision.
ENR does not present itself as a compelling value stock for investment. Despite its low valuation, with the stock trading at 10x earnings and low market expectations (3 buy ratings and 6 hold/sell), the company faces significant headwinds. Before the pandemic, the stock traded around $60, but it has since fallen to approximately $30. A key concern with ENR is its high debt level, expected to reach a Debt/EBITDA ratio of 5x by the end of 2024. While this is not an immediate bankruptcy risk, it has resulted in the deferral of important capital expenditures, indicating under-investment in its operations and future growth potential. Though specifics on missed projects are unclear, there is a prevailing sense that the company has failed to invest adequately.
Additionally, there is little to suggest a strong long-term growth story for ENR. The company’s leadership, under a lawyer who made a poor acquisition decision in 2018/2019, offers no inspiring vision for the future. ENR’s latest product innovation, batteries designed to taste bad to deter children from chewing on them, may have safety benefits but offers limited excitement from an investment perspective. The 2018 acquisition of the auto care business from Spectrum, including the STP brand, is seen as a strategic misstep with little value, recalling an outdated legacy from old marketing campaigns.
Another issue is the company’s lack of transparency regarding its debt maturities. ENR’s failure to clearly outline its debt obligations raises concerns, suggesting that the situation may be unfavorable. This lack of clarity on maturities often signals deeper financial issues, and it serves as a warning for investors to avoid companies that are not forthcoming about their debt profiles.
Many view ENR as a company likely to be acquired by private equity, though there is uncertainty whether the buyout price will be closer to $40 or $30. Regardless, investors may find more promising opportunities elsewhere.
Energizer Holdings, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held ENR at the end of the second quarter which was 23 in the previous quarter. While we acknowledge the risk and potential of ENR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ENR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.