With Energizer Holdings Inc (ENR) declaring their first ever quarterly dividend payment to all shareholders of record at the close of business yesterday (August 22, 2012), we decided to review Energizer Holdings Inc through the lens of F.A.S.T. Graphs™. The stock currently appears undervalued based on its historical operating history, especially since the company just started paying a dividend.
Management seems to have a lot of confidence in the company's future as evidenced by this statement from Ward Klein, Chief Executive Officer of Energizer Holdings: "The payment of a quarterly dividend reflects our financial strength, consistent cash generation, and commitment to increasing shareholder value and total shareholder return" - this might be a good time for the prudent investor to research Energizer Holdings, Inc to possibly add to their portfolio.
About Energizer Holdings Inc (ENR): Directly from their website
"Energizer Holdings, Inc. (NYSE: ENR), headquartered in St. Louis, MO, is one of the world's largest manufacturers of primary batteries, portable flashlights and lanterns. Energizer is a global leader in the dynamic business of providing power solutions with a full portfolio of products including Energizer® brand battery products Energizer® MAX® premium alkaline; Energizer®Ultimate Lithium; Energizer® Advanced Lithium; Rechargeable batteries and charging systems; portable flashlights and lanterns; power connectors, inductive chargers and, most recently, comprehensive household lighting collections."
Earnings Determine Market Price: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
Earnings & Price Correlated Fundamentals-at-a-Glance
A quick glance at the historical earnings and price correlated F.A.S.T. Graphs™ on Energizer Holdings Inc shows a picture of undervaluation based upon the historical earnings growth rate of 11% and a current PE of 11.6. Analysts are forecasting the earnings growth to continue at about 10.7%, and when you look at the forecasting graph below, the stock appears undervalued based on analysts' forecast, (it's outside of the value corridor of the five orange lines - based on future growth).
Energizer Holdings Inc: Historical Earnings, Price, Dividends and Normal PE Since 2003
Performance Table Energizer Holdings Inc
The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return; capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.
Long-term shareholders of Energizer Holdings Inc, assuming an initial investment of $1,000, would have received a total return of 9.8% per annum versus 3.7% in the S&P 500.
The following graph plots the historically normal PE ratio (the dark blue line) in conjunction with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 2003.
A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Energizer Holdings Inc is .95 which is historically low.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:
- The rate of change (growth rate) of the company's earnings
- The price or valuation you pay to buy those earnings
Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.
The consensus of 14 leading analysts (purple highlighting) reporting to Capital IQ forecast Energizer Holdings Inc's long-term earnings growth at 10.7%. Energizer Holdings Inc has medium long-term debt at 51% of capital (red circle). Energizer Holdings Inc is currently trading at a P/E of 11.6, which is below the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Energizer Holdings Inc's True Worth™ valuation would be $143.10 at the end of 2017 (brown circle on EYE Chart), which would be a 17.5% annual rate of return from the current price (yellow highlighting).
Earnings Yield Estimates
Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Energizer Holdings Inc to an equal investment in 10 year Treasury bonds, illustrates that Energizer Holdings Inc's expected earnings would be 7.4 (purple circle) times that of the 10 year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.
Summary & Conclusions
This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.
Disclosure: No position at the time of writing.