With a market capitalization of $5.21 billion, Acuity Brands, Inc. (AYI) provides lighting and building management solutions. The company operates through two segments, Acuity Brands Lighting and Lighting Controls (ABL); and the Intelligent Spaces Group (ISG).

On September 28, the company declared a quarterly dividend of $0.13 per share. The dividend is payable on November 1, 2023, to shareholders of record on October 18, 2023. This reflects positively on the company by demonstrating its commitment to rewarding investors and maintaining financial stability.

Furthermore, on May 15, AYI announced the successful acquisition of KE2 Therm Solutions, Inc., a company specializing in developing and providing intelligent refrigeration control solutions aimed at enhancing profitability through heightened system efficiency and reduced operational and service expenditures.

This strategic move is anticipated to enable AYI to broaden its array of products and access previously untapped customer segments within the commercial refrigeration market. Shares of AYI have gained 6% over the past month to close the last trading session at $167.17.

With the company set to release its fourth-quarter earnings tomorrow and having exceeded revenue and EPS estimates in three of the last four quarters, will it be worth considering investing in AYI? Here is what could shape AYI’s performance in the near term:

Solid Financials

During the third quarter that ended May 31, 2023, AYI’s gross profit marginally increased year-over-year to $447.30 million. Its adjusted operating profit also marginally rose from the year-ago value to $162.90 million. In addition, the company’s adjusted EPS grew 6.5% from the prior year’s quarter to $3.75.

As of May 31, 2023, the company’s cash and cash equivalents amounted to $359.30 million, compared to $223.20 million as of August 31, 2022.

Favorable Analyst Estimates

Analysts expect AYI’s EPS to increase 7.6% year-over-year to $13.81. In addition, the company’s EPS is expected to grow 12.8% per annum over the next five years.

Historical Growth Record

Over the past three years, AYI’s revenue increased at a CAGR of 6.3%. Its EBITDA and net income grew at respective CAGRs of 7.7% and 11.8%. In addition, the company’s EPS and levered free cash flow rose at a CAGR of 19.4% and 5.6%, respectively.

High Profitability

AYI’s trailing-12-month gross profit margin of 42.77% is 41.1% higher than the industry average of 30.30%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of 15.04% and 9.34% are 11.2% and 50% higher than the industry averages of 13.52% and 6.23%, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, AYI is trading at 12.11x, 28.9% lower than the industry average of 17.01x. Its forward EV/Sales of 1.39x is 16.1% lower than the 1.65x industry average. Moreover, AYI’s forward EV/EBITDA of 8.36x is 23.3% lower than the 10.90x industry average.

POWR Ratings Reflect Solid Prospects

AYI’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AYI has an A grade for Quality, justified by its higher-than-industry profitability. Also, the stock has a B for Value, consistent with its lower-than-industry valuation.

AYI is ranked #7 in the 59-stock Home Improvement & Goods industry. Click here to access AYI’s Growth, Stability, Sentiment, and Momentum ratings.

Bottom Line

AYI’s recent acquisition endeavors have the potential to bolster its profitability through increased system efficiency and reduced operational costs while also opening doors for product expansion and market expansion. Furthermore, the company’s dividend declaration underscores its financial stability. 

When coupled with its robust financial performance, strong profitability, and discounted valuation, AYI could be an ideal buy ahead of its earnings release.

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

While AYI has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Home Improvement & Goods industry: Steelcase Inc. (SCS), Tile Shop Holdings, Inc. (TTSH) and Lifetime Brands, Inc. (LCUT) with an A (Strong Buy) ratings. For exploring more A-rated Home Improvement & Goods stocks, click here.

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AYI shares were trading at $167.73 per share on Tuesday afternoon, up $0.56 (+0.33%). Year-to-date, AYI has gained 1.51%, versus a 11.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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