Energizer's (ENR) fiscal Q1 beat was driven mostly by acquisitions and timing rather than strong underlying demand, and margins were weaker, Morgan Stanley said in a note Sunday.

The firm said gross margins were affected by three mostly temporary factors. Tariffs were about a 300 basis-point headwind as the company worked through inventory purchased at higher tariff rates, but this pressure is expected to ease over the rest of the year, the firm said.

Gross margins were also impacted by roughly 200 bps from $65 million of Panasonic-branded product sales during the APS transition, as well as another 100 bps from temporary costs related to supply chain realignment, which management says is largely complete, the firm added.

Management forecasts roughly 300 bps of sequential gross margin improvement from Q1 to Q2, followed by another 300 to 400 bps of improvement in fiscal H2, with a goal of returning to low-40 percent gross margins by the end of fiscal year 2026, the firm said.

"This sequential rebound does seem plausible to us, but does reduce FY visibility," it added.

Morgan Stanley lifted its price target on Energizer to $24 from $22 and kept its equalweight rating. Shares of the company were down over 4% in recent Monday trading.

Price: 22.22, Change: -1.20, Percent Change: -5.12