In this market, it’s tough to find a GARP stock, but ENS fits the bill.

peter-lynch

You wouldn’t expect a financial article to make reference to the Zombie Apocalypse, but I’m doing it to illustrate the importance of batteries.

That’s because, when the Zombie Apocalypse happens, while everyone else is hoarding food, I’m going to be at the front door of a company called EnerSys (NYSE: ENS).

It isn’t just because industrial batteries are good things to have when zombies take over the world. It’s also because it’s a multi-billion dollar business.

EnerSys manufactures, markets, and distributes industrial batteries all over the world. It offers reserve power products used for backup power for the continuous operation of critical applications in telecommunications systems, computer-controlled systems, security systems, ignition applications, electrical control systems for energy pipelines, and most importantly – for aircraft, satellites, submarines, ships, and tactical vehicles.

The company also offers power products used in manufacturing, warehousing, forklifts, mining equipment, and trains.

EnerSys sells its aerospace and defense products to the governments of the United States, Germany and the United Kingdom, and to defense and aviation OEMs.

This diverse customer base ensures EnerSys isn’t beholden to changes in any one given industry.

What I love about this business is that it fits a lot of famed investor Peter Lynch’s criteria. First, it’s a boring business. Second, it’s the kind of thing that is right under our noses but most people don’t even think about it. Third, it is actually a growth stock and it is not overvalued like virtually every other growth stock in this market.

Let’s take a look at EnerSys’ most recent earnings, to illustrate how things are going.

For the quarter ended on Sept. 28, earnings came in at $1.06 a share, beating both company guidance of $1.00 to $1.04, and estimates of $1.02. Those earnings were up 22% year over year.

The jump in earnings came on total revenue of $630 million, meaning revenue improved 10.7% year over year, from $569 million. This growth was driven both organically and via acquisition, but the fact that organic growth was strong is what gives me confidence in the stock.

Particularly enthralling was that revenues were up in almost every region, which is not the case with many other companies. Revenues for the Americas were up 16% YOY, although that came with a 2.3% decline in operating earnings.                       

Revenues in Europe, the Middle East and Africa grew 4.5% year over year, and operating earnings made the Americas a distant thought by growing 71.7%. Asia revenues and operating earnings grew 9.7% year over year.

On the profit side, gross profit jumped 12.6% and that came on an expansion in gross margin of 40 basis points to 25.8%. Operating margin also rose, by 200 basis points, to 12.7%.

Yes, things are growing briskly at the battery company, even better than at the more well-known company that features that silly bunny with the drum.

EnerSys’ balance sheet is in great shape, with $240 million in cash. The company achieved $87 million in free cash flow over the last 12 months. I’d like to see stronger cash flow, but I’m not arguing since growth is obviously not being constrained. On top of it all, the company even pays a small dividend, with a yield of 1.2%.

For FY15, earnings are pegged at $4.32 per share. With the stock at $60, it trades at 14x estimates. Analysts project long-term earnings growth of 16%, giving the stock a PEG (Price/Earnings to Growth) ratio of 0.90.

A growth stock with a PEG ratio under 1.0? In this market? That’s anything but boring.

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Published by Wyatt Investment Research at