Amazon Batteries Threat Is Real, But Energizer Profit Growth Can Keep Going, And Going, And Going...

With two weeks until Energizer Holdings Inc ENR reports its third-quarter earnings, KeyBanc analyst Jason Gere upgraded the stock from Sector-Weight to Overweight with a $55 price target.

Despite mixed Q2 results and the resignation of Energizer’s CFO in early June, Gere sees the company’s current risk/reward balance attractive.

Controversies Accounted For

Energizer handily beat the Street’s Q2 EPS estimate, but missed when it came to sales.

Former-CFO Brian Hamm’s abrupt resignation on June 8 added on to investor concerns, which the company tried to calm by reaffirming guidance for fiscal 2017.

Most significantly though, is the expected pressure from Amazon.com, Inc. AMZN’s emerging private label, Amazonbasics, which has begun selling batteries.

Amazon is likely to be investor’s biggest concern in the long-term, as it could affect up to 40 percent of Energizer’s sales.

Regardless, Gere believes that all of these concerns have already been priced into the stock’s current low-$47 level.

Furthermore, Gere argues that the company’s strong first-half results have not been fully considered and “a return to the historical model… is not priced into the stock.”

The analyst expects the Q3 earnings report to prove the strength of Energizer’s fundamentals and begin a push towards 2 percent organic sales growth and EPS gains in the long-term.

“We believe our bull case scenario [of $61 per share] is much more likely to occur than bear case scenario [of $41 per share],” said Gere.

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