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EnerSys (ENS) Unit Clinches $60M Battery Supply Contract

Zacks

Industrial battery manufacturer, EnerSys ENS, recently announced that it has secured a contract worth over $60 million to supply lithium-ion cells and batteries to space agencies and Original Equipment Manufacturers (OEMs) worldwide. This contract win signals the company's growing presence within the aerospace and defense sector.

These batteries, which can be deployed in various types of satellites and launch vehicles, are scheduled for shipment later this year. EnerSys’ subsidiary, Quallion LLC, will be in charge of manufacturing the raw materials and 72Ah large-format lithium-ion cells at its California facility. Another operating arm of the company – ABSL Space Products – will design, manufacture and test the batteries.

For U.S.-based space programs, ABSL Space Products will manufacture the batteries at Longmont, CO, whereas for European programs, the batteries will be manufactured in Oxfordshire, UK. EnerSys already enjoys a dominant foothold in the Thin Plate Pure Lead (“TPPL”) battery market and is a trusted supplier of energy storage solutions to a gamut of commercial, industrial and defense applications.

In addition, over the past decade, the company has supplied batteries designed for manned-flight space applications and NASA manned spacewalks as well. The latest contract win highlights EnerSys' rapidly expanding portfolio of lithium-ion cells and will help the company foray beyond its traditional lead-acid business. The company’s long-term growth drivers include higher demand for premium products, lean initiatives, robust prospects in Asia, cost-reduction programs and strategic product launches.


Near-Term Headwinds Playing Spoilsport

Despite the long-term drivers, EnerSys’ has had a dismal run on the bourse in the last six months. Its shares have lost 2.1%, in stark contrast to the Zacks categorized Machinery-Electrical Market’s average gain of 12.4%. Also, EnerSys’ earnings estimates have moved south in the past couple of months, which indicate bearish analyst sentiment for the stock.

The Zacks Consensus Estimate for fiscal 2018 earnings dropped from $5.02 to $4.89, over the last 60 days, thanks to two downward estimate revisions versus none upward. Most of EnerSys’ near-term problems are stemming from persistent increase in the prices of lead and other raw materials, including steel, plastic and copper. In light of sharply rising lead cost, customers are placing more orders at old price levels, hurting profits.

In order to combat the lead price rise, the Zacks Rank #4 (Sell) company has already initiated price increases, but the desired effects are taking longer than anticipated to take hold, adding to woes. Going by the company’s drab guidance for fiscal 2018, the challenging times are expected to linger longer than expected.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Barnes Group Inc. B has a solid earnings surprise history for the trailing four quarters, having beaten estimates each time for an average beat of 8.9%. It holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ACCO Brands Corporation ACCO has a positive average earnings surprise of 79.7% for the last four quarters, beating estimates all through. It holds a Zacks Rank #2.

With three beats over the trailing four quarters, Donaldson Company, Inc. DCI has a positive average earnings surprise of 3.9%. The company holds a Zacks Rank #2.

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