Roepers Is Right On Energizer

Between April and June 2012, Atlantic Investment Management reduced its position in Energizer Holdings, Inc. (NYSE:ENR) by 9% to finish the second quarter with 2.2 million shares (see more stocks Atlantic owned at the time). Apparently Atlantic’s manger, Alexander Roepers, has changed his mind: he told attendees at the Value Investing Congress that the maker of batteries, razors, and personal care products that Energizer was his top investment idea. He expects the stock to reach $100 per share in the next six months to a year, up from about $75 currently.

Alexander Roepers

Energizer Holdings, Inc.’s third fiscal quarter ended in June, with the company reporting that revenue had declined 9% compared to the same period a year ago. Earnings, however, actually edged up; the company cut advertising costs, and several costs from the previous year related to restructuring and debt retirement were no longer in effect. Combined with the effects of share buybacks, earnings per share came in at $1.06 versus 94 cents a year earlier- an increase of 13% despite the decline in sales. Over the first nine months of the fiscal year, revenue was about flat compared to the first three quarters of last year but net income was up 36% and EPS were up 45%.

However, the stock has not been very responsive to these improvements in the company’s business. It is up 10% over the last year, underperforming the S&P 500. From a quantitative perspective, it seems about fairly priced based on its current business at 15 times trailing earnings. Obviously, if the company can continue increasing earnings per share at the recent historical rate that is an excellent value for the growth. The sell-side expects an increase of only 6% in the next fiscal year, implying a forward P/E of 12. Energizer Holdings, Inc. is also now paying a dividend yield of 2.1%, and overall we would say that it has to disappoint Street expectations- which look quite achievable- in order to prove overvalued or even at its intrinsic value.

We’ve already mentioned Atlantic’s position in Energizer at the end of June, which made it the largest hedge fund holder of the stock according to our database of 13F filings. Barry Rosenstein’s JANA Partners and Charles de Vaulx’s International Value Advisers were two other funds which owned shares: they reported positions of 1.6 million and 730,000 shares, respectively. Find more stock picks from JANA Partners and from International Value Advisers.

Energizer’s peer group includes Spectrum Brands Holdings, Inc. (NYSE:SPB), whose product offerings include batteries alongside brands such as Black & Decker and George Foreman; The Procter & Gamble Company (NYSE:PG), a $190 billion market cap personal products company and owner of Duracell; Panasonic Corporation (NYSE:PC); and Avon Products, Inc. (NYSE:AVP), which is more concentrated on the personal care products side. With the exception of Panasonic- which is unprofitable on a trailing basis- all of these stocks trade at higher trailing earnings multiples than Energizer does. Panasonic is expected to recover, with analysts giving it a forward P/E of only 8, and even though we are worried about its future prospects it could be worth investigating to see what its return to profitability would look like. Avon took a severe hit to revenue and earnings last quarter versus the second quarter of 2011, and even with Wall Street analysts expecting it to bounce back its forward P/E is still 16. We don’t think it is as good a buy as Energizer. We would note that Procter & Gamble and Spectrum Brands turned in impressive earnings performances in their most recent quarter compared to a year earlier, and they are not much more expensive than Energizer on an expected earnings basis: they trade at 16 and 13 times forward estimates, respectively. With Procter & Gamble offering a 3.2% dividend yield and boasting a much larger market capitalization, it in particular may be a better buy.

What we continue to find attractive, however, is that Energizer’s relatively cheap forward P/E is based on quite modest expectations of EPS growth next year. Some of the factors that drove earnings growth last quarter, such as an end to restructuring charges, won’t be sustainable next year. Yet if the company can hold the line on revenue, or even see a very small decline, it could easily beat the Street through buybacks.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!