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Reasons Why Enerpac Tool's (EPAC) Prospects Seem Gloomy

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Enerpac Tool Group Corp. (EPAC - Free Report) seems to have lost its sheen due to challenges and uncertainties related to the pandemic. Also, lower oil and gas prices as well as international exposure are concerning for the company. Notably, its price performance has been weak comparatively and its earnings estimates have been lowered lately, pointing toward bearish sentiments for the stock.

The company is based in Menomonee Falls, WI, and has a market capitalization of $1.2 billion. It belongs to the Zacks Manufacturing – Tools & Related Products industry, which is part of the broader Zacks Industrial Products sector. The industry is in the bottom 21% (with rank of 199) of more than 250 Zacks industries.

The company presently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, its shares have gained 10.7% compared to the industry’s growth of 23.1%. Also, the sector grew by 20.6% and the S&P 500 rose 9.9% during the same timeframe.




 

Below we have discussed why it is prudent to avoid Enerpac Tool.

Pandemic-Led Headwinds: The company’s earnings in fourth-quarter fiscal 2020 (ended August 2020) decreased 90.5% from the year-ago quarter on a 29.7% decline in revenues and weak margin results. Results were adversely impacted by the pandemic, and low oil & gas prices. Revenues for the Industrial Tools & Services segment decreased 28.7% year over year, while that in the Other segment were down by 39.4%.

Organic sales in the quarter were down 27% year over year due to a fall in product and service sales.
 
The company remains wary of the pandemic-related uncertainties in the quarters ahead and so refrained from providing financial projections for fiscal 2021 (ending August 2021). For the first half of the year, it expects a slow recovery in markets and seasonality to impact its performance.

The Zacks Consensus Estimate for revenues in the first quarter of fiscal 2021 (ending November 2020) is pegged at $122.7 million, suggesting a decline of 16.4% from the year-ago reported figure.
 
Risks From International Operations: The company is exposed to risks — including geopolitical issues, unfavorable movements in foreign currencies and others — arising from international operations. Notably, it has a presence in Asia, Europe, the Middle East, the United States and others.

In fourth-quarter fiscal 2020, the company’s core sales were down in low 30% in the Asia Pacific, while for the Americas’ it decreased in mid-20%. Also, core sales in the Middle East were down in high-30% and declined in mid-teens in Europe.

Other Headwinds: Though having long-term benefits, the company’s strategic exits made in the past few quarters have adversely impacted its performance. For instance, the strategic exits lowered its fourth-quarter fiscal 2020 sales by 8.6 million. Notably, the net impact of divestitures and acquisitions was negative 4% on sales. Such impacts of strategic exits might get reflected in the performances ahead.

Earnings Estimate Trend: Enerpac Tool’s earnings estimates have been revised downward in the past 30 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at 56 cents for fiscal 2021, reflecting a decline of 13.8% from the 30-day-ago figure. The same for fiscal 2022 (ending August 2022) has declined 7.4% to 87 cents during the same period.

Enerpac Tool Group Corp. Price and Consensus

 

Enerpac Tool Group Corp. Price and Consensus

Enerpac Tool Group Corp. price-consensus-chart | Enerpac Tool Group Corp. Quote

It is worth noting here that five downward revisions have been recorded for fiscal 2021 and two downward for fiscal 2022. There was no upward revision for fiscal 2021 and fiscal 2022 in the past 30 days.

In addition, earnings estimates for first-quarter fiscal 2021 are pegged at 10 cents per share, down from 15 cents mentioned 30 days ago. There was one downward and one upward revision in the past 30 days.

Enerpac Tool’s Performance Versus Industry Players

The company has underperformed three companies, including Kennametal Inc. (KMT - Free Report) , Stanley Black & Decker, Inc. (SWK - Free Report) and Lincoln Electric Holdings, Inc. (LECO - Free Report) , in the past three months. During the period, Kennametal, Stanley Black and Lincoln Electric gained 28.8%, 24.4% and 11.3%, respectively.

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