Energizer (NYSE:ENR): Downgraded to Underperform at Merrill/Bac

From Notable Calls

Merrill Lynch/Bank of America is out with a downgrade on Energizer (NYSE: ENR) to Underperform from Buy, lowering tgt to $59 from $74.

Firm notes the downgrade is consistent with a shift toward more defensive companies with less leverage for ’09, and is based on the following: 1) further macro deterioration and related risk of retailer inventory de-stocking, 2) the 75% run the shares have seen, and 3) the fact that ENR no longer trades at a deep discount to the bottom of the household products / personal care (HPC) group.

Lowering EPS ests to $5.29 for ’09, $5.82 for ‘10
Firm is lowering their FY09 EPS est to $5.29 (-13% y/y) from $6.01, based on a 40bp cut to sales growth, a 70bp cut to operating margin, and higher interest and other expense. They are now assuming that ENR fails to hold EPS flat y/y in FY09, which the company noted would be “a challenge” in its Q4 press release. So despite a slight pullback in the US$ and easing commodity costs since ENR last report, the worsening macro setting drives them to advocate taking some profits for those who bought at the bottom. FY10 est is now $5.82 (+10% y/y), down from $6.53, based on a lower base year and a higher y/y growth assumption.

Notablecalls: ENR is a big mover and I suspect the stock will take a fairly sizable hit on this MLCO downgrade. I'm guessing the stock will trade pretty close to $50 level in the n-t.

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