Argus Research Initiates Equity Research Report Coverage on Enerpac Tool Group Corp. (NYSE: EPAC).

Rhea-AI Summary

Argus Research has initiated coverage on Enerpac Tool Group (NYSE: EPAC), highlighting the company's position as a premier industrial tools provider. The company exceeded its ASCEND transformation program targets, achieving over $50-60 million in annual operating profit improvement ahead of schedule. Fiscal 2025 guidance projects net sales of $610-625 million, representing 5% growth at midpoint, with adjusted EBITDA of $150-160 million. The company maintains a strong financial position with $167.1 million in cash and minimal net debt of $27 million.

Positive

• Exceeded ASCEND program targets for operating profit improvement ahead of schedule
• Gross margins expanded by 180 basis points to 51.1% in fiscal 2024
• Adjusted EBITDA margin improved to 25.0%, up 1100 basis points since fiscal 2021
• Strong balance sheet with $167.1 million cash and low leverage ratio of 0.2x
• Projected free cash flow of $85-95 million for fiscal 2025

Negative

• organic revenue growth guidance of 0-2% for fiscal 2025
• DTA acquisition expected to be margin dilutive in fiscal 2025

Insights

Financial Analyst

The initiation of coverage by Argus Research provides several key insights into EPAC's financial position and growth trajectory. The company's strong fundamentals are evident in its 51.1% gross margins and impressive 25% adjusted EBITDA margin, showing significant improvement of 1100 basis points since FY2021. The ASCEND program has exceeded expectations, delivering $50-60 million in annual operating profit improvements ahead of schedule.

The fiscal 2025 guidance suggests moderate growth with projected revenues of $610-625 million and adjusted EBITDA of $150-160 million. The healthy balance sheet with only $27 million in net debt and a low 0.2x leverage ratio provides significant financial flexibility for future growth initiatives and shareholder returns. The $85-95 million guided free cash flow for FY2025 further strengthens the company's financial position.

Market Research Analyst

EPAC is well-positioned in a $2-3 billion serviceable market with significant growth potential in infrastructure, rail, wind and industrial MRO sectors. The company's strategic focus on the Asia Pacific region aligns with global infrastructure upgrade needs and clean energy initiatives. The recent DTA acquisition, while initially margin dilutive, expands market reach and capabilities.

The company's diversified revenue streams across multiple industrial sectors provide stability and growth opportunities. With current annual revenue of over $600 million, EPAC has substantial room for market share expansion in its target verticals. The operational improvements and margin expansion demonstrate effective execution of growth strategies while maintaining profitability.

NEW YORK, Nov. 21, 2024 /PRNewswire/ -- Argus Research, an independent investment research firm, has launched Equity Research Report coverage on Enerpac Tool Group Corp. (NYSE: EPAC).

Click Here to view the full Argus Equity Research Report.

COMPANY HIGHLIGHTS: Excerpts (as conveyed by Argus Analyst Steve Silver) include:

EPAC: A premier industrial tools, services, technology and solutions company

• Diversified Global Business: Enerpac is a diversified provider of industrial products and services, with a broad vertical market focus and geographic operating footprint. The company engages in the design, manufacture and distribution of branded hydraulic and mechanical tools and leverages its expertise to provide high margin services to industries including refinery/petrochemical; industrial maintenance, repair and operations (MRO), infrastructure, power generation, machining & manufacturing and mining, among many others.
• Large Serviceable Market Opportunity: We see robust growth opportunities for its target vertical markets. In focusing on infrastructure, rail, wind and industrial MRO as its core target markets, as well as a geographic focus on the Asia Pacific region, we see Enerpac participating in markets that are expanding, in part, due to the need for global investment to upgrade aging infrastructure and in clean energy/climate control initiatives. Enerpac estimates a serviceable market opportunity between $2 billion and $3 billion for these target verticals, which currently comprise a modest portion of the current revenue mix, and compares favorably to its current annual revenue run rate over $600 million.
• ASCEND Program Driving Sustained Operating Efficiency: In March 2022, Enerpac began implementing its ASCEND transformation program, which was designed to accelerate organic growth strategies, improve operational excellence and production efficiency, and drive efficiency and SG&A productivity throughout the organization. At its formal completion at the end of fiscal 2024, the company invested $75 million in the program, and exceeded its increased targeted annual operating profit improvement of $50-$60 million by the end of fiscal 2023, a full year ahead of plan.
• Improving Margins: In achieving this operating profit improvement, Enerpac's streamlining of its manufacturing operations, supply chain rationalization and low-cost country sourcing has improved gross margins, which expanded by nearly 180 basis points to 51.1% in fiscal 2024. The company also reported a 50 basis point improvement in adjusted SG&A expense in fiscal 2024, resulting in an adjusted EBITDA of margin of 25.0%, up nearly 1100 basis points since fiscal 2021. We anticipate more modest, but continuing margin expansion over the coming years.
• Fiscal 2025 Guidance: In October 2024, Enerpac announced guidance for fiscal 2025, including organic revenue growth of 0% to 2% at Enerpac. Net sales, including the full year contribution from DTA (acquired September 2024) is forecast at $610 million to $625 million, which would represent growth of 5% at the midpoint. Its fiscal 2025 adjusted EBITDA forecast of $150 million to $160 million, represents a margin of 25.1% at the midpoint, which includes a 50 basis point improvement in the base business over FY24, but is largely offset by dilutive, but still profitable DTA margins.
• Healthy Balance Sheet: As of August 31, 2024, Enerpac had $167.1 million in cash and net debt of $27 million, with a leverage rate of 0.2 times net debt to trailing adjusted EBITDA, well below its target range of 1.5-2.5 times (0.5-times on a pro forma basis including the DTA acquisition, which closed after fiscal year end). We see robust free cash flow ($85 million-$95 million guided for fiscal 2025), enabling continued capital investment in the business, strategic M&A and returning capital to shareholders.

INVESTMENT THESIS: Click Here to view full Argus Equity Research Report and Investment Thesis.

Enerpac Tool Group Corp. (NYSE: EPAC)                                     www.enerpactoolgroup.com

Founded in 1910, Menomonee Falls, Wisconsin-based Enerpac Tool Group Corp. is a premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers and end markets for mission critical applications in more than 100 countries. Enerpac's businesses are global leaders of high pressure hydraulic tools, controlled force products and service solutions that help customers around the world safely, reliably and efficiently tackle some of the most challenging, complex, and often hazardous jobs.

For more information please contact:

Travis Williams
Senior Director, Investor Relations 
travis.williams@enerpac.com

About Argus Research Corp. 

Headquartered in NYC, Argus Research (www.argusresearch.com) is a leading independent equity research firm (est. 1934)  ̶  providing fundamental and quantitative research coverage on more than 1,600 companies across all 11 sectors of the S&P 500, as well as macroeconomic and equity market forecasts, thematic research, model portfolios and IPO research. In addition, Argus has recently committed to providing a company sponsored research solution for small & mid-cap companies seeking coverage. Argus's CSR Research Reports & earnings estimates (if applicable) are available on major research / earnings estimate aggregator platforms, including Bloomberg, Thomson Reuters, Factset and S&P Global.

For more Information please contact:

Darrell Stone
646-747-5438
dstone@argusresearch.com

Argus Research Co. has received a flat fee from the company discussed in this report as part of a Sponsored Research agreement between Argus and the company. No part of Argus Research's compensation is directly or indirectly related to the content of this assessment or to other opinions expressed in this report. Please refer to the full Argus report and the disclaimer for complete disclosures.

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FAQ

What is Enerpac Tool Group's (EPAC) revenue guidance for fiscal 2025?

Enerpac Tool Group (EPAC) projects net sales of $610-625 million for fiscal 2025, representing 5% growth at the midpoint, including the full-year contribution from the DTA acquisition.

What are the results of Enerpac Tool Group's (EPAC) ASCEND transformation program?

The ASCEND program exceeded its targeted annual operating profit improvement of $50-60 million by the end of fiscal 2023, one year ahead of schedule, with a total investment of $75 million.

What is Enerpac Tool Group's (EPAC) current cash position and debt level?

As of August 31, 2024, Enerpac Tool Group had $167.1 million in cash and net debt of $27 million, with a leverage ratio of 0.2 times net debt to trailing adjusted EBITDA.