Acuity Brands, Inc.’s AYI shares have outperformed the Zacks Building Products - Lighting industry in the past year. The company has been rallying on innovative lighting solutions and energy-efficient luminaries’ portfolio. Business re-alignment and cost-control measures are added benefits.
The Zacks Consensus Estimate for this manufacturer and distributor of lighting fixtures’ earnings suggests 7.1% year-over-year growth. It is to be noted that earnings topped analysts’ expectations in the trailing 12 quarters, depicting optimism surrounding its prospects.
However, extensive research and development involve high costs. Although the incremental cost of the technology is relatively low, the real cost of its installation is still growing. Again, inflation and higher cost of inputs could dampen its overall results. The industry is going through supply chain challenges and the rising cost of some components.
Image Source: Zacks Investment Research
Let’s check out the factors mitigating these headwinds and allowing this Zacks Rank #3 (Hold) company to grow further.
Factors Driving Growth
Diversified Lighting Portfolio: Acuity Brands keeps on diversifying its product portfolio through continuously innovating of energy-efficient luminaries and lighting control solutions. In response to rapidly changing market trends, Acuity Brands is continually expanding its portfolio of innovative lighting control solutions and energy-efficient luminaries. It introduced around 220 new and upgraded lighting and lighting control products over the last two years (through fiscal 2022).
During the NEXT 23 annual sales conference, the company introduced various products. One of them was the new nLight AIR System Input Device, which is an indoor controller that can be used in multiple spaces, including office, commercial and retail. Another product was the nLight AIR rPOD Micro. It is a battery-powered wall switch that can be used as a traditional wall switch or as a remote, providing control from anywhere within a building space.
The company also focuses on reducing customer energy consumption, reducing packaging and waste and improving transportation efficiency. Acuity Brands has expanded its capabilities to provide a broad portfolio of leading germicidal UV products.
Segments Re-Alignment: Acuity Brands has reorganized the business into two units: Acuity Brands Lighting and Lighting Controls "ABL" and Intelligent Spaces Group "ISG". ABL includes lighting, lighting controls and components businesses and ISG offers building management systems as well as location-aware applications, including Distech and Atrius.
Through the beginning of fiscal 2022, the company’s Trevor and the rest of the ABL team have continued to focus on high product vitality, elevate service levels and use technologies to differentiate its performance from others. For ISG, the company mainly focuses on technologies to solve problems in spaces by making them smarter, safer and greener.
Cost-Saving Approach: AYI has undertaken various cost-saving actions that are expected to improve margins. These efforts include realignment of headcount with current volumes, a freeze on all non-essential employee travel, efforts to decrease discretionary spending and planned reductions in its real estate footprint. In the fiscal second quarter, adjusted EBITDA rose 6.5% and adjusted operating profit grew 5% from the prior-year period.
Superior ROE: Acuity Brands’ superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 22.2% versus the industry’s negative 2%. This indicates efficiency in using its shareholders’ funds and AYI’s ability to generate profit with minimum capital usage.
A few better-ranked stocks in the Zacks Construction sector are:
Sterling Infrastructure, Inc. STRL, currently carrying a Zacks Rank #2 (Buy), provides transportation, e-infrastructure and building solutions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
STRL’s expected earnings growth rate for 2023 is 11.4%.
Willdan Group, Inc. WLDN, sporting a Zacks Rank #1 at present, is a nationwide provider of professional, technical and consulting services to utilities, government agencies and private industry.
WLDN’s expected earnings growth rate for 2023 is 39.8%.
Howmet Aerospace Inc. HWM, carrying a Zacks Rank #2 at present, is a global manufacturer of engineered products serving the aerospace, defense and commercial transportation industries. The company is expected to benefit from higher aircraft production rates and an easing of supply chains in the transportation market. Importantly, share gains in the titanium aerospace market are expected to act as a major growth tailwind.
HWM’s earnings for 2023 are expected to grow by 20.7%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report