Royce & Associates Has Been Buying EnerSys

Peers for Enersys would include Exide Technologies (NASDAQ:XIDE), Regal-Beloit Corporation (NYSE:RBC), Nidec Corporation (NYSE:NJ), and Littelfuse, Inc. (NASDAQ:LFUS). Exide, a battery maker whose products are used in automotive and industrial environments, is actually unprofitable on a trailing basis and its revenue was down 8% in its most recent quarter compared to the same period in the previous year. The company is highly leveraged, though analyst expectations (the sell-side is generally bullish on auto related companies) imply a forward P/E of only 5. We’d avoid the stock, though at that multiple it’s possible that Exide would be a way to express optimism on the auto industry.

The other three comparable companies have trailing earnings multiples clustered in the 15-17 range, so they are priced at a premium to Enersys. In addition, Littelfuse has actually been seeing slightly lower revenue and earnings than a year ago; at the highest forward P/E of these five companies, we don’t think that it is a buy. Net income has been up nicely at Regal and Nidec, though at a lower rate than Enersys experienced. Of course, we’d noted that Enersys wasn’t getting much revenue growth and so its earnings growth might not be sustainable. Investors may want to investigate Regal and Nidec to see if these companies face similar concerns, and even if they do not they are considerably more expensive than Enersys in any case.

EnerSys isn’t an exciting company, but the market is pricing it quite cheaply. Some of its peers might have more reliable earnings growth, though their earnings multiples are considerably higher. Even if the growth rate slows down at EnerSys it might still be a good value and so we think Royce may have made a good decision here.

Related links:

Royce & Associates Owns Over 10% of Molex

Royce & Associates Likes Brady Corp