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Why Should You Dump EnerSys (ENS) from your Portfolio Now


Industrial battery manufacturer, EnerSys ENS has been disappointing investors of late. The company continues to grapple with increasing costs and lead price fluctuations that, among other factors, will continue to hurt profits in the short run.

Mirroring these headwinds, the stock has exhibiteda dismal performance on the bourse. Inthe past three months, EnerSys’ shares have lost 4.7%, againstthe industry’s average gain of 1.9%.

Moreover, earnings estimates have moved south in the past couple of months, indicating bearish analyst sentiment. The Zacks Consensus Estimate for fiscal 2018 earnings moved down from $4.84 to $4.69, in the past 60 days, led by two downward revisions. Let us delve deeper and try to find out why it would be wise to dump the stock from your portfolioat the moment.

Fluctuations in commodity prices, especially that of lead, has become a major concern for the Zacks Rank #5 (Strong Sell) company. In order to offset the price volatility, the company’s decision to increase price has most often led to massive fluctuations in its selling price. EnerSys estimates that 35% of its revenues are subject to adjustments based on a lead price index, which exposes the company to vulnerability in price changes.

Continuous rise in the price of lead as well as other raw materials including steel, plastic and copper has become a major concern for the company. Increase in cost of raw materials are expected to inflate the cost of goods sold, consequentlyeroding profitability. In light of rapidlyrising lead costs, customers are placing more orders at old price levels, which is hurting profits.

EnerSys’ gross profit percentage has been adversely affected by the company’s decision to take multiple long-term investments. Further, higher spending on Lean initiatives, Digital Core installation and new products development are weighing down on margins.

A significant portion of EnerSys’ revenues and expenses are denominated in foreign currencies, rendering it vulnerable to fluctuations in exchange rates. The company’s statistics show that past fluctuations in Euro have contributed to major issues in production costs. Going forward, the company anticipatescurrency fluctuations to puttop-line growth under pressure and hamper its flexibility in adjusting costs, consequentlystrainingmargins.

Additionally, the company faces stiff competition from international manufacturers and distributors, as well as a large number of smaller, regional competitors. Some of its major rivals include GS Yuasa Corporation, Exide, Johnson Controls and Yokohama Industries. In order to boost competency the company needs to have an interesting lineup of product launches, to stoke growth in the upcoming quarters.

Stocks to Consider

Some better-ranked stocks from the same space include II-VI Incorporated IIVI, Smith (A.O.) Corporation AOS and Barnes Group, Inc. B. While II-VI Incorporated sports a Zacks Rank #1 (Strong Buy), Smith (A.O.) Corporation and Barnes Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

II-VI Incorporated has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 50.4%.

Smith (A.O.) Corporation has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 3.3%.

Barnes Group has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 11.6%.

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