Energizer Shares Rally Following Goldman's Upgrade To Buy

Energizer Holdings Inc ENR saw its stock gain more than 3 percent on Monday after analysts at Goldman Sachs upgraded the battery maker to Buy from Neutral with a price target boosted to $49 from a previous $38.

According to Goldman Sachs' Jason English, Energizer Holdings' stock is trading at a "compelling" relative valuation for a stock that's "poised to undergo a beat-and-raise cycle." In fact, the analyst sees an 18 percent average upside to Wall Street's consensus earnings per share consensus estimate through 2018.

English noted the battery market is seeing "improving" trends in the US, while demand for batteries in newer devices (such as wearables and home automation) is beginning to emerge. In addition, industry data is showing that industry pricing for batteries are picking up - and this trend is expected to continue in the medium-term.

English expects Energizer Holdings' to see a 0.9 percent organic sales compounded growth rate in the near-term, marking an improvement from the past four years compounded annual growth of -4.2 percent, partially due to the loss of contracts with Sam's Club and Family Dollar stores. However, the analyst suggested that Energizer Holdings' market share has stabilized following the lapping of the contracts.

English also cited the possibility of M&A activity in his upgrade given the company's "solid" balance sheet and "strong" cash flow profile. The analyst added that Energizer Holdings could also "evolve as a household roll-up story" through opportunistic M&A activity.

Bottom line, Energizer Holdings' is faced with improving fundamentals and margins. As such, the analyst sees a narrower valuation discount versus household comps.