Acuity Brands, Inc. (AYI) provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG). It serves electrical distributors, energy service companies, retail improvement centers, digital retailers, lighting showrooms, and enterprise campuses.

AYI primarily focuses on product development and prudent cost management. It is continuously expanding its portfolio through innovation of lighting control solutions, building management systems, and location-aware applications while keeping abreast with rapidly changing market trends.

In January, AYI partnered with Microsoft Corp. (MSFT) to bring new capabilities to AYI’s intelligent lighting controls and automation solutions. By combining the power of Microsoft Azure IoT and AI with Acuity Brands' customer solutions, the companies might enable end customers to forecast and calculate the environmental and financial impacts of new lighting and building management technologies.

Also, the company is focused on expanding its business via strategic acquisitions and joint ventures. The acquisition of the Osram DS business contributed approximately 3% to ABL's net sales in the third quarter of fiscal 2022.

Hence, AYI’s strategic initiatives to transform its business supported revenue growth and cost management while boosting profit margins despite global supply chain constraints and uncertain market conditions. The company reported strong performance in the fiscal 2022 third quarter. Its net sales and income improved 17.9% and 23.3% year-over-year, respectively.

Furthermore, the company continues to generate value for shareholders through share repurchases. During the third quarter, it deployed $296 million in share repurchases. It is also known for delivering attractive dividends. On August 1, the company paid a quarterly dividend of 13 cents per share. It pays $0.52 as dividends annually, yielding 0.30% on the current price.

The stock has gained 7.3% over the past five days to close the last trading session at $171.52.

Here is what could influence AYI’s performance in the upcoming months:

Solid Financials

In the fiscal 2022 third quarter ended May 31, 2022, AYI’s net sales increased 17.9% year-over-year to $1.06 billion. The company reported a gross profit of $445.10 million, up 15.1% year-over-year. Its adjusted operating profit grew 19% from the year-ago value to $162.80 million.

Furthermore, AYI reported an adjusted EBITDA of $176.10 million, registering an increase of 16.2% year-over-year. The company’s adjusted net income rose 20.8% from the prior-year period to $121.30 million, while its adjusted EPS came in at $3.52, up 27.1% year-over-year.

Favorable Analyst Estimates

Analysts expect AYI’s revenue for the fiscal 2022 fourth quarter (ended August 2022) to come in at $1.10 billion, representing an increase of 10.8% from the prior-year period. The $3.69 consensus EPS estimate for the ongoing quarter indicates a 12.9% year-over-year growth. The company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.

In addition, the company AYI’s revenue for the current fiscal year 2022 (ending December 2022) is expected to rise 15.4% and 12.6% from the previous year to $4 billion and $12.61, respectively. Also, analysts expect the company’s revenue and EPS for the next year to grow 2.4% and 3.8% year-over-year to $4.09 billion and $13.08, respectively.

High Profitability

AYI’s trailing-12-month gross profit margin of 41.91% is 44% higher than the 29.10% industry average. Its trailing-12-month EBITDA margin of 12.64% is 31.4% higher than the 9.62% industry average. Also, the stock’s trailing-12-month net income margin of 9.43% is 40% higher than the industry average of 6.73%.

Furthermore, AYI’s trailing-12-month ROCE, ROTC, and ROTA of 18.53%, 11.80%, and 10.14% are higher than the industry averages of 14.29%, 6.68%, and 5.11%, respectively. The stock’s trailing-12-month asset turnover ratio of 1.08% compares to the industry average of 0.80%.

Discounted Valuation

In terms of forward non-GAAP P/E, AYI is currently trading at 13.61x, 14.4% lower than the industry average of 15.89x. The stock’s forward EV/Sales multiple of 1.48 is 10.6% lower than the industry average of 1.65.

Likewise, its forward EV/EBITDA multiple of 9.11 compares to an industry average of 10.66. And the stock’s forward Price/Cash Flow of 12.57x is 5.6% lower than the 13.31x industry average.

POWR Ratings Show Promise

AYI's overall A rating equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. AYI has a grade of A for Quality, in sync with its higher-than-industry profitability metrics. In addition, it has a B grade for Growth, consistent with solid revenue and earnings growth estimates.

AYI is ranked #2 out of 62 stocks in the Home Improvement & Goods industry.

Beyond what I have stated above, we have also given AYI grades for Sentiment, Value, Momentum, and Stability. Get access to all AYI ratings here.

Bottom Line

AYI reported strong financial results in the third quarter of fiscal 2022. The company’s strategic business initiatives should drive solid growth.

Given the company’s attractive dividends, AYI is ideal for investors looking to ensure a steady passive income stream.

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

AYI has an overall POWR Rating of A. One could also check out these other stocks within the Home Improvement & Goods industry with an A (Strong Buy) rating: Bassett Furniture Industries, Incorporated (BSET), Masonite International Corp. (DOOR), and HNI Corporation (HNI).

AYI shares were unchanged in premarket trading Monday. Year-to-date, AYI has declined -18.81%, versus a -13.76% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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