(By Mani) Shares of Energizer Holdings Inc.
) could witness an upside amid the battery maker's slew of positive announcements. Since last year, the company has initiated a quarterly conference call, has been more open to meeting with investors, provided some guidance on going forward projections and is buying back stock.
Adding to the positive momentum, Energizer said plans to initiate a quarterly dividend of 40 cents per share in the fourth quarter of its fiscal 2012, which ends Sept. 30, 2012. The dividend implies an annual cash dividend rate of $1.60 per share.
In addition, the company has approved a new authorization to acquire up to 10 million shares of its common stock. This authorization replaces a similar authorization to acquire up to 10 million shares, which was approved by the Board on July 24, 2006, and under which approximately 8 million shares of common stock have been repurchased.
"We believe the company's authorization of an additional 10 mm share buy back will be a critical positive driver for the investment case over the next 12 months. We estimate that Energizer's current share authorization could lift EPS by 15 percentage points or almost 2 years of EPS growth towards the higher end of its 5-8% range," UBS analyst Nik Modi wrote in a note to clients.
At the same time, Energizer's decision to initiate a dividend will not only create downside protection for the stock, but also help with its multiple. On average, a stock's forward multiple compared to the S&P 500 increases 12 percent in the next three years following a company's initiation of a dividend for the first time.
Modi added that their analysis found that consumer companies who initiated a dividend saw 23 percent, relative, multiple expansions over the next 3 years.
The company targets fiscal 2012 earnings of $6.00 to $6.20 and sees third fiscal quarter earnings lower than last year on the timing of promotional spending over the last six months of fiscal 2012 and some expected retail battery inventory de-load. Street currently expects fiscal 2012 earnings of $6.09 a share, according to analysts polled by Thomson Reuters
"Importantly, when factoring in Energizer's already stated share repurchase program (of 10 mm shares), we estimate the company has plenty of flex to deliver on existing consensus expectations while still investing behind its business (including responses to heightened levels of promotional activity by P&G in blades/razors)," Modi noted.
In addition, having more realistic targets will enable Energizer to make better resource allocation decisions while delivering consistent and high quality EPS growth. Importantly, with its dividend, Energizer management looks to deliver high- single digit total return.
Similar to initiatives underway at P&G and programs implemented at other consumer staple companies, Energizer has meaningful opportunities to cut costs by reducing duplication across its several divisions.
For instance, the company operates its household and personal care businesses very independently, which limits opportunities to leverage corporate scale. Reducing duplication could give Energizer the opportunity to implement a corporate wide head count reduction without affecting its business.
"We estimate if Energizer were to see a 50 bps improvement per year in core SG&A over the next 3 years, it would equate to roughly $100mm in annualized pre-tax savings," the analyst added.