EnerSys Q3 Earnings Surge 50%, But DeepValue Report Flags Valuation and Policy Dependencies

What happened

EnerSys reported third-quarter fiscal 2026 results with adjusted diluted EPS excluding 45X credits of $1.84, up 50% year-over-year, driven by margin expansion across most business areas. However, the DeepValue master report highlights that EnerSys' recent earnings growth has been heavily supported by IRA Section 45X tax credits, which contributed $184.6M in FY25, and by ongoing restructuring efforts that are not yet fully realized. While Energy Systems and Specialty segments have shown strong growth, Motive Power declined due to macro uncertainty, underscoring the company's exposure to cyclical industrial demand. The report cautions that EnerSys' stock has risen 77% over the past 12 months to trade at 18.2x P/E, pricing in optimistic assumptions about sustained double-digit growth and stable policy support. Investors should look beyond the headline numbers to assess risks such as potential reductions in tax credits, execution delays in restructuring, and softening end-market demand.

Implication

EnerSys' earnings beat may fuel further investor enthusiasm, potentially pushing the stock toward the $180 trim level identified in the DeepValue report. However, the report stresses that margin expansion is partly artificial due to 45X credits, and any policy tightening could significantly compress earnings, making current valuations unsustainable. Restructuring savings of $80M are targeted but only $30-35M are expected in FY26, leaving execution risk that could derail margin improvements if not delivered on schedule. Energy Systems growth must sustain double-digit rates to justify the stock's premium, yet this segment remains vulnerable to telecom capex pauses and competitive pressures. Consequently, investors should consider trimming positions above $180 or awaiting a pullback to the $135 attractive entry point to mitigate risks from overvaluation and external dependencies.

Thesis delta

The Q3 results align with the bull scenario of sustained Energy Systems growth, but they do not materially alter the DeepValue report's thesis that EnerSys is overvalued and reliant on precarious tax credits. If anything, the earnings beat could exacerbate overvaluation without addressing core vulnerabilities like policy risk or restructuring execution, reinforcing the recommendation to avoid new positions until a lower price restores margin of safety.