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Enersys Invests $6.4M to Boost Battery Manufacturing Sites

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In a bid to strengthen its aerospace anddefensebusiness, Enersys (ENS - Free Report) recently invested $6.4 million at two of its battery manufacturing facilities. The investment will boost production capabilities of the company’s battery manufacturing facilities located in Horsham, PA and Tampa, FL.

The recent investment will support in the upgrade and expansion of both these facilities, which are already equipped with computer modeling and analysis capabilities. Notably, the investment will enable the company to achieve technological as well as facilities advancements. These include expansion of large-format automated production line, increased electrical testing equipment, additional square footage to humidity-controlled dry rooms apart from other ancillary equipment expansions.

Our Take

Although EnerSys has been making multiple long-term investments to boost growth, higher spending on new products development and system enhancements such as SAP, salesforce and success factors are also weighing on the bottom line. Also, the company operates across diverse geographies, which expose it to uncertainty in the global macroeconomic environment especially connected with politics,unfavorable labour relations in foreign operations and economic instability. Also, the company is exposed to significant governmental scrutiny in the areas where it operates.

EnerSys is exposed to fluctuations in commodity prices, especially that of lead. The continuous increase in the price of lead and other raw materials including steel, plastic and copper is a formidable headwind. Rising cost of raw materials is expected to inflate the cost of goods sold, thus eroding profitability. Notably, in the past month, this Zacks Rank #4 (Sell) stock has yielded a return of 3.0%, underperforming the industry’s growth of 3.4%.

Further, the company remains focused on acquiring companies to complement its growth, product differentiation and technology development. This policy of acquiring a large number of companies adds to the integration risks. For instance, in the second quarter of fiscal 2019, the company expects a net charge of 6 cents per share from its restructuring programs and acquisition activities. In fact, the frequent acquisitions are a distraction for management and can affect organic growth over the long term.

Key Picks

Some better-ranked stocks from the same space are Alamo Group, Inc. (ALG - Free Report) , Ideal Power Inc. and ESCO Technologies Inc. . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alamo Group surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 6.06%.

Ideal Power outpaced estimates thrice in the preceding four quarters with an average earnings surprise of 18.09%.

ESCO Technologies exceeded estimates thrice in the preceding four quarters with an average positive earnings surprise of 7.04%.

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