|
Published: June 2, 2010
I've been on a kick lately researching global brands. The reason
is because these companies not only make for great defensive
positions to have in a down market, but a certain number of
these stalwarts have been able to reinvent themselves in recent
years. This oftentimes transforms companies from boring,
overlooked investments into modest growth plays that provide
outsized returns over time.
I've found one company that appears to fit this bill exactly.
Certain things are just necessities in life. Batteries are one
of them. Energizer (NYSE: ENR) has been in the public
lexicon for thirty years, and most don't even realize that it is
just a rebranded product, formerly known as the Eveready
battery. Nine years later, the Bunny appeared on the scene and
the rest is history.
It's hard to say which battery brand truly "lasts longer," but
it doesn't matter to Energizer. The company has built its
reputation simply by taking a product that is a commodity and
creating a great brand around it. As a result, Energizer
batteries are sold in 165 countries and hold about 25% of the
market.
As technology has changed, batteries have too. This permitted
Energizer to expand into rechargeable batteries, lithium-based
batteries and batteries that fit all kinds of consumer products.
Where consumer products lead, Energizer follows. The company
waits for others to innovate, then adapts its operation to
create a battery for it.
Recently, however, Energizer saw fit to expand its business into
other consumer products via acquisition. Normally, I'm not a fan
of growth via acquisition. However, if a global brand name
acquires other brand names, it begins to take on the appearance
of a holding company.
This can reap big rewards for investors. Companies like
Liberty Media (Nasdaq: LINTA) are a perfect example.
Liberty's captured businesses are strong brand names and
generate huge
cash flow. Energizer decided to head in this direction and
the move has jump-started the company's growth prospects. A few
recent brand purchases include Schick, Edge, and Skintimate in
the wet shave arena. Skin care products have been scooped up
also, namely Banana Boat and Hawaiian Tropic suntan lotion as
well as the Playtex brand. And if you own a diaper genie for
your little one, you may not realize that Energizer is the
parent company.
Investors should ask what kind of risks
Energizer faces going forward. It is a retail company, and that
generally means bad news in a recession. However, Energizer also
launched its own shaving line this year, and expectations are
for it to generate between $75 million and $100 million this
year alone. Even without much contribution from this new
product, second quarter earnings leapt +15%. That's fantastic
for a retail company in this environment.
Setting this aside, investors want to make sure that a defensive
name like this is in fact a safe harbor by checking on company
financials. At first glance, the $1.7 billion in net debt may be
unsettling. However, trailing twelve month earnings are more
than $300 million after debt service. During this same period,
Energizer generated a whopping $525 million in
free cash flow. That makes $1.7 billon in debt look
positively small by comparison.
Insiders own 7% of the company and mutual funds own upwards of
30% of the shares outstanding, which suggests that fund managers
see Energizer as a defensive play at the very least.
Action to Take --> Energizer
is a stalwart-growth hybrid. Its expected growth rate of +8%
going forward reflects this. Given that the stock trades at nine
times next year's earnings, this means you can jump in today and
expect a solid return. That makes Energizer a great core
holding, particularly in a tough market.
-- Frederick Steier
Contributor
StreetAuthority |
