With a Great Long-Term Strategy, Energizer Holdings Is a Buy Today

A highly promotional and competitive retail environment may keep the pressure on for the next several months, but Energizer continues to tack on brands that will keep the cash coming in for years.

Feb 3, 2014 at 4:44PM

Energizer Holdings (NYSE:ENR) goes well beyond its namesake batteries. The company owns a variety of household names, from Banana Boat sunscreens to Schick razors. Energizer is a company that fundamentals-focused investors could easily love -- it sells perennial products that hold tremendous brand power across the board. The market hasn't been too fond as of late because of weaker demand and a ballooning restructuring effort, but these look to be short-term illnesses for an otherwise strong, long-running business.

Low power
Energizer Holdings failed to juice the Street last week, when it reported lower-than-expected sales and profits. The company hauled in sales that were 8.3% lower than the year-ago quarter, excluding recent acquisitions. EPS felt a similar, if sharper, pain, dropping 17.4% to $1.71. On an adjusted basis, the damage wasn't as bad at $2.10 per share, down 4.5%.

Energizer has a few things pressing on its back currently. For one thing, the company recently bought further into the feminine-care industry with purchase of Johnson & Johnson's product line -- a modest $185 million in cash. It wasn't a huge purchase, but after factoring in the costs of integrating the lines with its existing ones, margins and one-time expenses put some pressure on the company. The acquisition, along with a highly promotional environment in the personal-care industry (and, thus, lower top line sales), and Energizer Holdings didn't have a great quarter.

Also weighing on the company is an expanding corporate restructuring. Management is trying to smooth out the business over the long run and allow for greater ability to make acquisitions when the opportunity arises. At the moment, the company has forecasted for $225 million to $300 million in total project cost savings. Investors can expect to see these savings through 2016.

Growing the portfolio
Similar to brand holdings companies like Fortune Brands Home & Security and Spectrum Brands, Energizer's longevity stems from its ability to add on new, diverse product lines to its core brands. The company does not target super-growing, trendy names as much as aisle-shopping mainstays. While this equates to less exciting earnings on a quarter-to-quarter basis, the business is set up to grow comfortably for years and years.

In recent periods, margins have seen pressure (even though they were up 250 basis points this quarter, on an adjusted basis) as retailers move more and more toward promotion-heavy sales strategies. This means that the brand names have to market themselves heavily against the competition while also facing pricing pressure. Furthermore, as consumers continue the slow recovery from a crippling economic crisis, brands that may have commanded higher prices (such as Banana Boat or Playtex) have to compete more with their generic, cheaper counterparts.

Management cited continued pressure in the near term (at least the first half of this year, according to the release), but the macroeconomic environment is undoubtedly improving -- albeit at a snail's pace. So, while the market may not love Energizer at the moment, it does have long-term tailwinds and the ability to exploit a return to economic normalcy. At just over 12 times earnings and with a 2.1% dividend, the company is attractively valued and ripe for the picking. Those interested in long-term oriented, easy-to-understand businesses should take a closer look.

More from The Motley Fool 
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Michael Lewis and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers