Enerpac Is Well-Positioned But Struggles With Systemic Issues
Enerpac Tool Group (NYSE: EPAC) emerged as a dual narrative story for us early this summer but that story may be unraveling. Not only is the Biden infrastructure plan on the rocks and doomed to failure but systemic headwinds are cutting deeply into the recovery. While results are good and the outlook is favorable, results and outlook are both dimmer than previously forecast. What this means for Enerpac Tool Group and the market at large is a revaluation of the stock that could shave another 10 to 20% off of the share price of this highly valued stock.
Enerpac Tool Group approaches Pre-Covid Business Level
Enerpac Tool Group had a good quarter but management says COVID-19, lockdowns, supply chain issues, and logistics cut into both the top and the bottom line. The company's $145.40 and that revenue is up 30.5% from last year but missed the consensus by 340 basis points because of it. In a world where backlogs continue to grow, and demand remains high, the market really wants to see a company like Enerpac exceed its expectations and not miss them. Worse, results remain below the pre-COVID levels by 800 basis points. Regardless, revenue was driven by a 28% increase in core sales that was aided by a 3% impact from foreign exchange. Product sales rose by 23% while Services rose by 55%.
Moving down the report there was other good news but also news tempered by the impact of systemic headwinds. The company reports the GAAP operating margin improved by more than 700 basis points while the adjusted operating margin improved by 900 basis points but both fell short of the consensus mark. On the bottom line, the company reported GAAP earnings of $0.11 and adjusted earnings of $0.19 both of which fell short of expectation.
Looking forward, the company is expecting full-year fiscal 2022 revenue to come in a range between $590 and $610 million versus the consensus expectation of $601 million, and, in our view, the risk here is twofold. On the one hand, demand and backlogs suggest upside risk to the numbers while systemic risks that other companies say are worsening provide downside risk. This kind of uncertainty is not good for the stock market.
“As we look ahead to the next fiscal year, we are encouraged by our strong backlog, resulting from solid order rates in the fourth quarter. While our largest regions showed encouraging levels of product recovery in the quarter, not all were back to pre-COVID levels. Supply chain constraints, increased commodity costs, logistical shortages, as well as continued slow recovery in certain regions, are expected to create headwinds into fiscal 2022,” Says CEO Randy Baker.
The Technical Outlook: Enerpac Slips To New Low
Shares of Enerpac Tool Company fell more than 7% in the wake of the Q4 earnings report and fiscal 2022 Revenue Guidance. The move has shares trading at a nine-month low, well below the Pricetagets.com consensus, and above potential support but there is a great risk at this level. If price action cannot maintain support above the $21 level we see it falling to $20 and possibly to $18. The upshot is that such a move would open an attractive buying opportunity into a fundamental play on the economy.
Companies in This Article:
