Citi Says Sell Energizer, Resumes With An Underweight Rating
Citi has resumed coverage of Energizer Holdings Inc (NYSE: ENR) with an Underweight rating on concerns over HandStands acquisition, which adds a largely unrelated and non-strategic product portfolio (car fragrances).
Energizer is trying to diversify from batteries which have weak long-term secular trends. The HandStands acquisition is part of that strategy. But, the acquisition also increases the leverage. On a pro forma basis, net leverage increases to 2.1x vs. 1.3x currently.
Citi is also concerned with broad secured (and unsecured) incurrence provisions in the indenture and management's limited M&A track record.
"Moreover, we see the purchase multiple (~10x EBITDA) as high for a business with limited synergies and brand recognition, and that itself has been rolling up brands in recent years," analyst Kevin Ziets wrote in a note.
"Our ratings also reflect inferior relative value to other consumer names, as ENR has one of the longest maturities in the space while possessing some of the weaker business fundamentals," the analyst added.
Shares of Energizer closed Thursday's regular trading session at $48.71.
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