Evolve or die.
It’s a hard rule in nature as well as in business.
Today’s Bull of the Day is about to celebrate it’s 100th anniversary, having been founded during World War 1 in 1919 as a linen supply company.
Originally the “Atlanta Linen Supply Company” there are no longer any sheets or towels coming out of Acuity Brands’ (AYI) factories or warehouses, but instead, state of the art LED lighting products for both the commercial and consumer markets.
Adaptation has been in Acuity’s DNA from the very start and the company also had a successful chemicals division from the 1970’s until 2007 when it was spun off so the parent company could focus solely on lighting and electrical products.
There are countless US companies that found themselves on top of the world at some point with popular, brand-name goods and services, only to find themselves hobbled or even out of business after failing to adapt to new technologies and/or changing consumer tastes.
Acuity Brands has taken exactly the opposite approach, reinventing their business through both organic growth and acquisitions to stay relevant – and largely profitable – though the past century. After hitting all-time highs of $275/share in 2016, Acuity suffered with the rest of the LED lighting industry for the next two years, finding themselves squeezed by low cost and low quality competition.
That market has really turned around lately however and now we have a chance to pick up Acuity at a truly attractive valuation. We’ll own their entire stable of brands, spanning the entire market from simple consumer products to sophisticated industrial systems and we’ll pay less than 15 times forward earnings.
That’s less expensive than the S&P 500 on a forward valuation basis for a nimble company in a high growth industry.
Acuity has acquired 17 different brands in the past 10 years and has the financial acumen to make those purchases accretive to the bottom line quickly. Even with its voracious appetite to keep expanding into new product lines, the company sports a debt to equity ratio of just 19.4%, lower than the industry average of 21.1%.
Analyst expectations have been on the rise lately with 3 upward revisions in the past 60 days, earning Acuity Brands a Zacks Rank #1 (Strong Buy).
We’ll have to wait until July for the next quarterly report from Acuity, but this is definitely the type of company an rational investor should take a hard look at.
When it comes time to “adapt or die,” Acuity certainly has it figured out.
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