Bren-Tronics Acquisition Will Expand Footprint In Defense And Energy Storage

Key Takeaways

• EnerSys is optimizing its Energy Systems business in Missouri to reduce costs and improve margins amid rising demand.
  
• Strategic expansion through Bren-Tronics acquisition is expected to bolster earnings, particularly in aerospace and defense sectors.
  
• Foreign exchange headwinds and U.S. market challenges may hinder revenue growth, with supply chain issues affecting margins and profitability.

Catalysts

Engages in the provision of stored energy solutions for industrial applications worldwide.

• EnerSys anticipates a gradual recovery in the U.S. communications market and an upturn in the Class 8 OEM transportation sector, potentially boosting revenue and earnings in future quarters.
  
• The company is progressing with the optimization of its Energy Systems business, particularly at its Missouri plants, which should reduce costs and improve net margins as demand increases.
  
• EnerSys plans to introduce new energy management systems and battery solutions, enhancing its product portfolio and driving revenue growth through cutting-edge technology.
  
• The acquisition of Bren-Tronics is already exceeding expectations in terms of revenue and earnings, and ongoing integration could further bolster earnings and strategic expansion, particularly in aerospace and defense sectors.
  
• EnerSys is strategically positioned to benefit from U.S. policy initiatives focused on domestic supply chains and energy storage solutions, likely enhancing revenue through increased defense and infrastructure spending.

EnerSys Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EnerSys's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 9.7% in 3 years time.
• Analysts expect earnings to reach $402.2 million (and earnings per share of $9.48) by about March 2028, up from $328.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 11.7x today. This future PE is lower than the current PE for the US Electrical industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.55%, as per the Simply Wall St company report.

EnerSys Future Earnings Per Share Growth

Risks

• The company faces foreign exchange headwinds and a slower-than-anticipated recovery in the U.S. communications market, which may continue to negatively affect revenue growth.
  
• There is ongoing pressure from under-absorption in U.S. facilities, which could impact operating efficiency and net margins.
  
• Supply chain challenges and potential tariff changes in key regions could lead to cost increases, affecting gross margins and profitability.
  
• Ongoing economic uncertainty, particularly in EMEA, could suppress demand and impact overall revenue projections.
  
• Although there is progress in specialty markets, challenges in the U.S. transportation sector suggest potential volatility in revenue contributions from this segment.

Valuation

• The analysts have a consensus price target of $115.148 for EnerSys based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $402.2 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 8.6%.
• Given the current share price of $97.57, the analyst price target of $115.15 is 15.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.