Stocks I Do Not Want To Own - Energizer - ENR

I apologize, I should have been writing more posts like this one. There is significant educational value in understanding which stocks I quickly discard when looking through prospects.

I am not recommending that you sell ENR short. I used to be in that business, when I helped the young analysts at Behind the Numbers. We started out writing exclusively sell recommendations for institutional investors, and eventually short sale ideas for hedge funds.

ENR is just not the type of value stock I want to own. The stock sells at 10x earnings, and expectations are low, only 3 buys and 6 hold/sells. Before the pandemic the stock was $60, and now it is near $30.

My biggest problem with ENR is they have too much debt. They will end 2024 with Debt/EBITDA of about 5x. That is nowhere near enough to put them in bankruptcy, but it is just enough to have them defer needed capital expenditures. I cannot tell you exactly which new plants ENR failed to build. All I have is a general feeling they have been under-investing.

There is also no interesting long-term story here. The company does not have a presentation that gives a happy picture of the future. It is about what you would expect for a company run by a lawyer that made a very bad acquisition in 2018/2019. The new product ENR is touting is batteries that taste bad, so young children will not chew on them. Maybe that is the greatest innovation in recent battery history, but it does not get my blood boiling.

The acquisition of the auto care business from Spectrum was just silly. ENR did get the STP brand. Us old guys remember “STP is the racers edge” commercials.

ENR also violates my rule on debt maturities. If the company presentation does not clearly tell you explicitly what the maturities are, you can bet it is not a pretty picture. This is lazy, but I do not have hours to spend on this company.

To me it seems ENR is a company doomed to be bought by the private equity ghouls. You can try to guess whether that eventual price is $40 or $30, but I have better things to do with my time.

As required by law, I checked the owners before I gave up on ENR. Not surprisingly, there were no value investors I respect that own ENR. It is 2% owned by the JP Morgan Mid-Cap Value Fund, which tells you all you need to know about how they manage money at JP Morgan. Mario Gabelli is a small owner, but his judgement has been a little suspect in his later years.

I did find the curious 6% owner called Clarkston Capital Partners. These guys are kind of interesting. I have to give them credit for owning the difficult Stericycle, before it got bought at a solid premium. Their other big position is Post Holding, a stock worth considering. Better yet, Clarkston just bought a new $400 million position in something call Clarivate plc - CLVT - $7.

CLVT info/software spin from Thomson/Reuters. CLVT is a little over-leveraged, but it is also a new position for the highly respected Seth Klarmen. What Seth has been up to, is a story for another day.