Will Energizer Stock Keep Going and Going…?

Well-known battery maker Energizer Holdings (NYSE:ENR) has been around for a long time powering our favorite electronic devices. But it has only traded as a standalone company for about 5 years during which the stock has had periods of mixed success.

More recently, the stock has joined the broader market rally out of its March 2020 all-time low of $26.60. With Energizer shares having roughly doubled off their bottom, how much energy is left in the tank?

With the company coming off a solid quarterly earnings report and the global economy returning to growth, Energizer stock may keep going and going.

How Did Energizer Holdings Perform in Q1?

Energizer had a solid start to its new fiscal year. First-quarter revenue was up 15% to $848.6 million led by higher replenishment sales in North America. The strong performance was the result of both organic growth which was up 13% and Energizer's recent acquisitions. Increased sales of automotive and general batteries drove a 45% surge in earnings to $67.1 million, or $0.91 per share.

A positive development on the balance sheet front was the company's refinancing of $1.2 billion of debt. This will result in $25 million of interest expense savings per year.

As a result of the interest cost reduction and growth trends in the business, management boosted its adjusted EPS guidance for the full year to a range of $3.10 to $3.40. At the midpoint, this represents bottom-line growth of more than 40% following a COVID-19 impacted fiscal 2020 when earnings fell 23%.

Last year lockdowns in several countries and Brexit-related shipment delays weighed on performance. Management noted that they expect pandemic factors to continue to be a source of uncertainty around consumer demand and its cost structure.

What are Energizer's Growth Prospects?

As a globally recognized battery brand, Energizer's growth opportunities are largely tied to the health of the world economy. Higher demand for cameras, camcorders, CD players, laptops, and memory devices equates to a greater need for the batteries that power them. And since it owns three major brands in Energizer, Eveready, and Rayovac, there's a good chance your battery purchase finds its way to Energizer Holdings.

But despite having a presence in more than 170 countries, Energizer still has room for growth overseas. Less than 30% of sales come from outside of the Americas. Like many consumer product-related companies, emerging markets represent the major growth opportunity. In developing economies such as India where the educated, middle-class consumer is on the rise, greater purchasing power will translate to a greater need for battery power.

And while we automatically think batteries when it comes to Energizer, more than one-fourth of the business is non-battery related. The company's growing auto care division sells a range of interior and exterior car cleaning products encompassing several popular brands including Armor All. It also has a small lighting business that offers car headlights, area lighting, and flashlights (that, naturally, are of the 'batteries not included' variety).

 Is Energizer Holdings Stock a Buy?

Energizer Holdings stock can be considered somewhat of a back door approach to investing in the global economic recovery. Improving demand trends in batteries, auto care products, and lighting should drive healthy growth for at least the next couple of years.

The growth is likely to be roughly in line with GDP growth so it will likely be modest—but it can be had for a cheap price. Energizer is one of the best values in the consumer staples sector trading at 16x forward earnings which is well below the consumer products industry average of 25x.

An above-market dividend yield of 2.5% doesn't hurt either. More than half of Energizer's profits are returned to shareholders as dividends. It also has a new share buyback program through which the company can repurchase up to 7.5 million shares.

Following the February 9^th earnings report, sell-side analysts have been quick to confirm Energizer as a 'buy'. Five firms reiterated their buy rating with price targets as high as $60 (which represents more than 25% upside from here). Talk about a relatively low-risk way to bank a potential 25% gain!

So, as far as low growth, low-risk consumer stocks go, Energizer Holdings may be as good as it gets. As the world slowly awakes from its pandemic slumber, demand for what's already a somewhat essential product in batteries should tick higher. In the process, Energizer's stock will likely continue to charge higher.