Today’s recommendation, Acuity Brands, Inc. (AYI), makes lighting fixtures and systems for commercial and residential applications. From LED bulbs to “intelligent” lighting systems, the company is at the forefront of its field. More importantly, the stock is poised to benefit from several larger trends — in both the stock market and the construction sector — as Canaccord Genuity analyst Jonathan Dorsheimer explains below. AYI currently trades around $63.
“We are raising our numbers and price target on Acuity Brands, Inc. (AYI) given an improving macro and, perhaps more importantly, market sentiment.
Investment highlights
“We believe that the continued availability of credit, low core inflation and reasonable market valuations will continue to take stocks higher this year. After meeting with investors around the country, we feel that now more than ever, high-quality mid-cap companies with a solid record of execution will lead this surge.
“Acuity’s execution has been very impressive, having consistently gained market share in a flat/declining end market over the past few years while managing its costs.
“While monthly new building starts and retrofit data are uncertain, we believe that the overall trend/macro environment has seen its bottom and that company will continue to benefit from increased high-value, high-growth SSL and controls sales.
“We have written that when fundamentals fall into place, the company’s earnings power could reach over $4.00 per share, and that investors will be willing to pay up for quality earnings. With visibility into these factors improving, we are able to confidently raise our 2013 estimates as well as the company’s expected multiple.
Valuation
“We are raising our price target to $81, from $63 previously, based on a 20x multiple to our C2013 EPS estimate.”
- Jonathan Dorsheimer, Canaccord Genuity Research, March 28, 2012