Friday, February 06, 2009

Energizer (NYSE:ENR): Added to Citi Top Picks Live with a $85 tgt

Citigroup is out positive on Energizer (NYSE:ENR) adding the stock to their Top Picks Live list with a $85 tgt (offering 73% upside from current levels) as ENR's shares are trading at a very reasonable 7.5x their CY10 EPS estimate.

The Story — Despite a weak U.S. economic environment, which has led to slow battery category growth, we are encouraged by recent trends as category sales growth accelerated to 4.9% in the last 4 week period, versus the 1.5% decline seen in the last month of 2008 (and, Citi notes, comps get increasingly easy for category growth with every passing month). More importantly, ENR was the only branded player in the total batteries category to gain market share in both 2008 (+0.7 pts, to 37.6%) and in January 2009 (+100 bps YoY to 40.5%). To be fair, ENR spent a lot to drive this growth as their percentage of sales on promotion rose sharply, but the firm thinks their EPS estimates for the rest of FY09 adequately reflect higher spending levels. While this data only reflects the U.S. battery category in tracked channels (which we believe accounts for ~40% of ENR's U.S. battery sales), they find these trends relevant and noteworthy.

Risk/Reward — With ENR expected to begin benefiting from the pullback in certain raw material costs, as well as continued synergies from the PYX acquisition, they believe that despite the tough macro backdrop, ENR will be able to generate ample operating cash flow to keep its debt/EBITDA within its covenants, which factor they believe has weighed on the stock heavily in recent months (though note that for2 consecutive quarters, ENR's debt/EBITDA has been below the critical 3.5x level on a TTM basis). And with the stock having stabilized recently (as a result of ENR's most recent earnings release), they believe that downside in the name is limited.

Bottom Line — Citi believes that while fiscal 2009 will be a challenging year for ENR, this outlook is already reflected in both the consensus estimates and the stock’s valuation. While the stock may lack a catalyst in the short term (next data points being monthly Nielsen data and next quarter’s earnings release in April), they think the worst is behind us on this name.

Notablecalls: ENR is a mover and I suspect that if the market's good this one has ample upside in the n-t.

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