EnerSys Faces Challenges Amid Rising Electricity Demand

EnerSys, a provider of energy storage solutions, is facing softer momentum, but tax credits provide support. The company's business relies on electricity reliability, which is under pressure due to increased demand. EnerSys is trying to recharge itself by focusing on its core products and expanding into new markets.

EnerSys (NYSE:ENS), a prominent provider of energy storage solutions, is currently experiencing softer momentum in its business operations. However, the company has found support in the form of tax credits, which have significantly boosted its profits. This development is particularly noteworthy given the increasing pressure on electricity reliability due to rising demand and uncertain supply sources. EnerSys has been capitalizing on these tax credits to drive growth and is planning to expand its operations by establishing a gigafactory in South Carolina [1].

Over the past decade, EnerSys has seen substantial growth in its revenues, from about $2.5 billion to over $3.5 billion annually. This growth has been accompanied by a shift in the type of batteries produced, with a decline in traditional flooded-lead acid batteries and an increase in maintenance-free systems. These new systems offer a lower total cost of ownership, providing higher value to clients [1].

In fiscal year 2023, EnerSys reported a 10% increase in sales to $3.71 billion, with non-GAAP operating profits of 8.7% translating into adjusted earnings of $5.34 per share. However, net debt of $725 million was reported as twice the annual EBITDA number of $361 million. The company has been benefiting from Inflation Reduction Act (IRC) credits, which have added additional earnings power. As of the third quarter of 2024, net debt was reduced to $578 million, and leverage ratios were just over 1 times, although EBITDA benefited from a boom in IRC credits [1].

EnerSys has been investing heavily in new technologies and facilities. In January 2025, the company announced a $199 million award from the Department of Energy (DOE) for its new facility in South Carolina, set to start production in 2028. The company has also been expanding its operations, with a 1% increase in fiscal 2025 sales to $3.62 billion [1].

However, the company has faced challenges in maintaining growth. In the first quarter of 2026, sales were up slightly, but operating performance was sluggish. The company announced a workforce reduction program, impacting 575 workers, to reduce costs by $80 million per annum from 2026 onwards [1].

EnerSys currently offers a mixed bag for investors. Earnings power from the organic business trends around $5 per share, but including credit profits results in total profits of roughly double that amount. Much of these additional earnings are used for buybacks and M&A. The company's shares trade at a reasonable multiple of around 10 times current earnings and 20 times earnings ex-credits [1].

In conclusion, while EnerSys faces challenges in maintaining growth, the company's focus on core products and expansion into new markets, supported by tax credits, offers a promising outlook. Investors should keep an eye on the company's capital spending plans and operational updates for further clarity.

References:
[1] https://seekingalpha.com/article/4817036-enersys-trying-to-recharge-itself