Dual Narrative Enerpac Tool Group Moves Higher

Enerpac Returns To Growth

Enerpac Tool Group NYSE: EPAC is fast becoming a dual narrative story. On the one hand, the company's business is accelerating on economic reopening and the resumption of projects and plans paused by the pandemic. On the other hand, the company is well-positioned to benefit from infrastructure spending.  While there is no guarantee on when or what the US government will decide to spend infrastructure money on, it's fairly certain government spending on infrastructure is going to increase sooner rather than later. 

“We are pleased with our return to year-over-year organic sales growth and the increased momentum as we progressed throughout the quarter,” said Randy Baker, Enerpac Tool Group’s President and CEO. “The continued positive sentiment among our distributors, the overall strength we are seeing across our vertical markets and product order rates inline with fiscal 2019 gives us confidence that our business will return to pre-COVID levels as we exit fiscal 2021.”

Enerpac Builds On Q2 Results

Enerpac had a great third quarter and one in which it experienced sequential and year-over-year growth. The caveat is that last year's Q3 saw revenue fall 65% so this year's 40.5% gain isn't as great as it could be. The company’s revenue is still down over the two-year period as well but there is a caveat here too. The two-year decline of 50% fails to account for the divestiture of businesses that basically cut revenue in half at the end of 2019. The 2-year comp for continuing operations is still negative but closer to the flatline than not. Regardless, the $143.10 million in reported revenue beat the consensus by 450 basis points on strength in all end markets. On a segment basis, consolidated core sales increased 36% with products up 40%, and services up 23%. 

Moving down the report, the company saw significant margin expansion driven by the resumption of business. The GAAP operating margin from continuing operations increased by 15.9% from ( 2%) in the prior-year quarter. The adjusted EBITDA margin rose to 17.1%, up more than 1,000 basis points, to help drive better-than-expected results on the bottom line. The company's GAAP EPS of $0.42 beat by $0.25 cents well the adjusted $0.28 beat by $0.11.

In regard to the balance sheet, the company was able to improve both its cash position and debt load during the quarter. Cash is up nearly 20% sequentially with debt down how about 7% and the leverage ratio cut in half. The leverage ratio fell to 1.1 times earnings from 2.1 times earnings and it may fall further. The company is currently sitting on  $136 million in cash with $195 million in debt and rapidly improving business conditions.

Infrastructure Giant Enerpac Guides Higher

Enerpac raised its guidance for the fourth quarter to revenue in the range of $147 million to $152 million. This Assumes sequential growth of 2.8% at the low end and puts the full-year outlook for revenue in a range above the previous guidance.  Based on what we're seeing in the economy and Enerpac’s results we feel this guidance is low. 

The Technical Outlook: Enerpac Hits A Wall

Shares of Enerpac surged more than 10% in premarket trading and looked ready to set a new high. That said, the bears seized control of the market and drove price action lower soon after the open to create a large red candle that implies strong resistance at the $28 level. The caveat here is that this candle is still very young and has hours before it closes so the technical picture could be much different by the end of the day. If resistance is confirmed at the end of the day we expect to see this stock trend sideways with a bottom near $24 and a top near $28