EnerSys ENS has failed to impress investors with its recent operational performance due to softness in the Energy Systems segment. Also, widespread operation exposes it to forex woes.

Headquartered in Pennsylvania, EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, the company develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, it provides support services for clients.

In the past year, this Zacks Rank #4 (Sell) company’s shares have gained 7.3% compared with the industry’s 35% growth.

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Let’s discuss the factors, which are likely to continue taking a toll on this company.

Segment Weakness: A decrease in capital spending of the telecommunication and broadband customers is adversely impacting EnerSys’ Energy Systems segment. The segment’s revenues decreased 9.6% year over year in the second quarter of fiscal 2025. Demand softness in the telecom and broadband end markets remains concerning for the company.

High Capital Expenditures: EnerSys has been making multiple investments for a while to boost growth. For instance, over the last few quarters, it has been making significant investments to expand the TPPL manufacturing capability. Although its investments hold good for long-term growth, high capital expenditures are likely to hurt the company’s bottom line in the short term. In the first six months of fiscal 2025, its capital expenditure totaled $66.5 million, up 85.4% year over year. For fiscal 2025, it expects capital expenditure to be in the range of $100-$120 million.

Forex Woes: EnerSys’ international presence exposes it to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar would hit profit margins unless offset by higher prices in locations outside the United States. Approximately 40% of EnerSys’ sales and related expenses are transacted in foreign currencies. Thus, adverse currency movements are a worry for the company. For instance, in the fiscal second quarter, foreign currency translation had an adverse impact of 1% on the Motive Power segment’s sales.

Stocks to Consider

Some better-ranked companies are discussed below.

Powell Industries, Inc. POWL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

POWL delivered a trailing four-quarter average earnings surprise of 57.7%. In the past 60 days, the Zacks Consensus Estimate for Powell’s fiscal 2025 earnings has increased 13%.

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In the past 60 days, the Zacks Consensus Estimate for ZWS’ 2024 earnings has increased 2.5%.

Kadant Inc. KAI presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 17.2%. 

The Zacks Consensus Estimate for KAI’s 2024 earnings has increased 1.8% in the past 60 days.

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