Acuity Brands Inc. (AYI - Get Rating) is primarily concerned with developing, manufacturing, and marketing products and services such as building management systems, lighting, lighting controls, and location-aware applications. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).

AYI posted a strong fiscal 2022 third-quarter performance. The top and bottom lines both exceeded the consensus forecast, thanks to stronger sales across all segments, pricing hikes, and product and productivity improvements.

The company’s Independent Sales Network’s net sales increased 15.6% year-over-year to $725.9 million. Its Corporate Accounts sales grew 34.3% from the prior-year quarter to $59.1 million. In addition, its retail sales of $44.7 million were up 23.8% from the prior quarter.

Here’s what could shape AYI’s performance in the near term:

Robust Financials

During the third quarter ended May 31, 2022, AYI’s total revenue increased 17.9% year-over-year to $1.06 billion. Its operating income increased 20.8% year-over-year to $142.7 million. The company’s net income grew 23.4% from the year-ago value to $105.7 million, while its EPS grew 29.5% from the prior-year quarter to $3.07.

Strong Profitability

AYI’s trailing-12-months net income margin of 9.43% is 42.9% higher than the industry average of 6.6%. Also, its ROC, gross profit margin, and ROA are 68.5%, 42%, and 96.4% higher than the respective industry averages. Furthermore, its asset turnover ratio of 1.1% is 35.9% higher than the industry average of 0.80%.

Impressive Growth Prospects

Street expects AYI’s revenues and EPS to rise 15% and 22.7% year-over-year to $3.98 billion and $12.48, respectively, in fiscal 2022. In addition, AYI’s EPS is expected to rise at a 12.8% CAGR over the next five years. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 12.50x, 17.2% lower than the industry average of 15.10x. Also, its forward EV/Sales of 1.37x is 10.7% lower than the industry average of 1.53x. Moreover, AYI’s forward EV/EBIT of 9.43x is 31.4% lower than the industry average of 13.73x.

Consensus Rating and Price Target Indicate Potential Upside

Of the eight Wall Street analysts that rated AYI, five rated it Buy, and three rated it Hold. The 12-month median price target of $201.29 indicates a 27.5% potential upside. The price targets range from a low of $181.00 to a high of $250.00.

POWR Ratings Reflect Solid Prospects

AYI has an overall grade of A, equating to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AYI has an A grade for Quality and a B for Growth and Value. AYI’s solid earnings and revenue growth potential is consistent with the Quality and Growth grade. In addition, the company’s lower-than-industry multiples are in sync with the Value grade.

Of the 63 stocks in the C-rated Home Improvements & Goods industry, AYI is ranked #2.

Beyond what I stated above, we have graded AYI for Sentiment, Stability, and Momentum. Get all AYI ratings here.

Bottom Line

AYI exhibited robust financial performance in the last reported quarter and surpassed analysts’ estimates for its top and bottom line. In addition, given the favorable analysts’ sentiments and the company’s solid profitability, the stock could rebound in the near term. So, we think the stock could be a great bet now.

How Does Acuity Brands Inc. (AYI) Stack Up Against its Peers?

AYI has an overall POWR Rating of A, which equates to a Strong Buy rating.  This rating is superior to its peers within the same industry, such as NACCO Industries Inc. (NC - Get Rating), Masco Corporation (MAS - Get Rating), and Duluth Holdings Inc. (DLTH - Get Rating), which all are rated C (neutral).

AYI shares were trading at $153.33 per share on Tuesday morning, down $4.51 (-2.86%). Year-to-date, AYI has declined -27.48%, versus a -20.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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