Enpro (NPO)

Industrial technology solutions provider EnPro Industries (NYSE:NPO) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 14.3% year on year to $295.4 million. Its non-GAAP profit of $1.99 per share was 4% above analysts’ consensus estimates.

Company Overview

Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Parker-Hannifin (NYSE:PH), Timken (NYSE:TKR), and Flowserve (NYSE:FLS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Enpro grew its sales at a weak 1.3% compounded annual growth rate. This fell short of our benchmarks and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Enpro’s annualized revenue growth of 3.9% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Enpro reported year-on-year revenue growth of 14.3%, and its $295.4 million of revenue exceeded Wall Street’s estimates by 5.1%.

Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, an improvement versus the last two years. This projection is healthy and indicates its newer products and services will catalyze better top-line performance.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Enpro’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 40.7% gross margin over the last five years. That means Enpro only paid its suppliers $59.34 for every $100 in revenue.

Enpro’s gross profit margin came in at 42.1% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Enpro has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Enpro’s operating margin rose by 2.7 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Enpro generated an operating margin profit margin of 11.2%, down 3.8 percentage points year on year. Since Enpro’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Enpro’s EPS grew at an astounding 20.8% compounded annual growth rate over the last five years, higher than its 1.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Enpro’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Enpro’s operating margin declined this quarter but expanded by 2.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Enpro, its two-year annual EPS growth of 9.9% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, Enpro reported adjusted EPS of $1.99, up from $1.57 in the same quarter last year. This print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects Enpro’s full-year EPS of $7.91 to grow 11%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Enpro has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12.7% over the last five years, quite impressive for an industrials business.

Enpro’s free cash flow clocked in at $48.2 million in Q4, equivalent to a 16.3% margin. The company’s cash profitability regressed as it was 2.7 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Enpro historically did a mediocre job investing in profitable growth initiatives. Its four-year average ROIC was 6.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Enpro’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Enpro reported $114.7 million of cash and $655.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $277.6 million of EBITDA over the last 12 months, we view Enpro’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $15.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Enpro blew past analysts’ revenue expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $269.38 immediately following the results.

Before making an investment decision, investors should account for Enpro’s business fundamentals and valuation in addition to what happened in the latest quarter.

Enpro isn’t a terrible business, but it isn’t one of our picks. First off, its revenue growth was weak over the last five years. And while Enpro’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Enpro’s P/E ratio based on the next 12 months is 30.7x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $252.33 on the company (compared to the current share price of $269.38), implying they don’t see much short-term potential in Enpro.