Morgan Stanley Steps To The Sidelines On Energizer, Notes Bull Thesis 'Played Out'

In a report published Thursday, Morgan Stanley analyst Dara Mohsenian downgraded shares of Energizer Holdings, Inc. ENR to Equal-weight from Overweight with a price target lowered to $140 from a previous $146.

According to Mohsenian, the bull thesis has "essentially played out" following the recent "significant" stock outperformance and multiple expansion. The analyst also noted that the market has preemptively priced in strategic potential for the Personal Care (Edgewell) business ahead of the upcoming spin, as well as a potential improving pricing environment in batteries.

"While there could eventually be strategic potential in the Edgewell business above our base case, we believe the probability/reward of this now appears appropriately priced in," Mohsenian wrote.

With that said, the current valuation is "appropriate," according to Mohsenian who noted that the revised price target is only slightly above its current price. In fact, the analyst's sum-of-the-parts analysis (on fiscal 2017 estimates), which is based on a 9x fiscal 2017 EV/EBITDA multiple for the Household Products business (Energizer) and a 15.5x multiple for the Personal Care business is only 1 percent ahead of Energizer's current stock price.

For Mohsenian's rating to return to Overweight, the Personal Care business would need to trade at a 17.5x 2017e EV/EBITDA with the Household Products remaining steady at a 9x multiple. However, the analyst admitted that a "fair" value multiple for the business would be toward the lower end of the peer group near 12x 2017e EV/EBITDA given "sluggish" category growth and Energizer's market share "weakness."