Energizer Holdings (NYSE:ENR)'s valuation appears “fully charged” with the risk/reward now balanced, analysts at UBS said as they downgraded the stock to ‘Neutral’ from ‘Buy’.
In a client note, the analysts also lowered their estimate for the battery manufacturer’s 2024 earnings to $3.13 per share, down from $3.25, and towards the lower end of the company’s own guidance range and 2% below analysts’ consensus.
“For us to become more constructive again, we would need to gain greater confidence in the company's ability to more than deliver on their earnings targets and/or a more attractive entry point,” the analysts wrote.
In its 4Q 2023 earnings statement, Energizer said it expected the macroeconomic uncertainty it experienced in fiscal 2023 to persist in 2024 organic revenue to be flat to down by low single digits, with adjusted earnings per share expected to be in the range of $3.10 to $3.30.
“We believe these headwinds will persist over the next 12-18 months and are driven by: (1) pull forward in demand, (2) promotional activities, (3) lost shelf space internationally, and (4) normalization of demand across device uses as consumer mobility/behavior continues to return to pre-pandemic levels,” the analysts wrote.
“Even though we believe that there is visibility towards continued margin expansion, much of the outlook hinges on improved top-line performance following what is expected to be a very challenging 1Q.”
While crediting the company’s management for steps taken through its Project Momentum initiatives as well as pricing that has allowed the company to begin the margin recovery process, the analysts said volume performance is expected to be sluggish, with promotions likely ramping higher.
“As such, we think returning to pre-pandemic profitability is likely a FY26/ FY27 event,” they concluded.
As well as the downgrade to ‘Neutral’ the UBS analysts lowered their price target for Energizer to $34 from $36.
Its shares traded 3.4% lower at $31.08 in early Monday afternoon trading.
Contact the author at stephen.gunnion@proactiveinvestors.com