Is Energizer Holdings Inc (NYSE:ENR) Doomed To Fail?

September 29, 2017, 10:28 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Energizer Holdings Inc (NYSE:ENR) is a well-known global brand that manufactures alkaline batteries mostly used within households. The company has been paying a regular dividend of 2.41%, but is currently facing numerous challenges, which threaten its survival into the future.

A major threat to Energizer’s future comes from increasing competition from private label and generic battery brands such as Amazon Basics batteries, which are sold by Amazon.com, Inc. (NASDAQ:AMZN). The company also faces stiff competition from Duracell and Rayovac, which are positioned as premium brands.

The shift towards ecommerce also places Energizer at a significant disadvantage as Amazon leads this category with a third of all online battery sales followed closely by Duracell with 21% and lastly Energizer with a mere 12%. Ecommerce retailing and stiff competition from other battery makers and retailers have pushed Energizer to a point where it has only two options, either to reduce its margins or lose some of its retail distributors.

As a premium brand, Energizer currently prices its batteries at least 64% to 184% more than its main private label competitor Amazon Basics. This is much higher than the widely accepted 20% premium commanded by most premium brands. This means that energizer batteries are much more expensive than other generic or private label batteries, which makes the company’s batteries less competitive.

Another major disadvantage facing Energizer is the fact that much of the future growth in battery demand is predicted to come from rechargeable Li-ion batteries, which Energizer does not manufacture. The company should start manufacturing Li-ion batteries if it wants to produce significant sales growth in future.

Energizer has also just recently completed a restructuring program aimed at reducing costs; hence, there is little chance that it can cut it current costs any further.

In summary, energizer faces a number of threats from factors that are beyond its control, which jeopardizes the company’s future profitability. The question remains whether dividend investors should buy Energizer stock or if they should avoid the stock due to its uncertain future.

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