Enerpac Tool Group Breaks Out To New High

Key Points

• Enerpac Tool Group is breaking out to new highs on solid results. 
• The company is a slow-growth company but making big strides with profitability. 
• Share repurchases are worth 5% annually. 

Enerpac Tool Group NYSE: EPAC is a small, industrial play breaking out to new highs. The company is managing growth in a tough environment and juicing its profitability. Among the many factors playing into the bottom line results is a strategy shift targeting a richer mix of products versus services. What this means to investors is a doubling of margin compared to last year, robust cash flows, and a healthy capital return program to support the market.

Enerpac Toolgroup is not a high-yielding stock or even a decent yield compared to the broad market. The payout amounts to 0.15% of the share price, with the stock at $29, but it is among the safest payouts on Wall Street. The dividend is less than 5% of the earnings, and earnings are growing, which raises the question of when and by how much the company will start increasing the distribution. Given the proper timing, the company is positioned to do so; it is currently using its healthy balance sheet and cash flow to leverage growth. 

The balance sheet is one of the company’s most attractive features. The net debt runs at 1X EBITDA, which is more than manageable and allows for share repurchases. The company repurchased 0.8 million shares for $21 million during the quarter, which annualized to over 4.1% yield. This is significant to shareholders because the company does not lean into share-based compensation. The share count is down more than 5% YOY, underpinning a rebound in the price action. 

Slow And Steady Wins The Race For Enerpac ToolGroup 

Enerpac Toolgroup is not a high-growth name but steadily growing revenue and bottom line results. The company reported $156.25 million in net revenue for the quarter, up 2.9% compared to last year. The growth is driven by a 4% gain in core sales driven by strength in 3 of 4 operating regions. The Middle East is an area of weakness due to the shifting strategy and focus on higher-quality service contracts. EU and Asia were both areas of strength, producing double-digit gains. On a products/services breakdown, product sales are up 9% and offset by a 13% decline in services. 

The decline in service revenue is a negative but part of a strategy to improve margin. The strategy works because operating and EBITDA margins improved, EBITDA margin by 1200 basis points compared to last year’s 12%. That’s double the prior year, and strength is expected to continue. Looking forward, the company adjusted its guidance for expected revenue to the high end of the previous range while raising the range for earnings. 

The Sell-Side Owns Enerpac Tool Group 

Enerpac has a lame analyst following, only 2 with reports nearly a year old, but the institutions own this stock. They own nearly 98%, the insiders about 1.5%, and they’ve been buying recently. The 12-month stats show net outflows for the past year, but the last 2 quarters have seen a significant uptick in buying. This is aiding the uptrend and a possible cause for the new highs. If new institutional money continues to flow into the market, this stock could continue to rise without other catalysts. 

The chart is favorable. The price action surged more than 5% to hit a new high, and there are signs of strength. The MACD and stochastic show bullish signals that could lead to a sustained rally. The next target for resistance is near $30 and may be reached by mid-summer.