Acuity Brands: LED Prospects, Technology Focus, And A Broad Portfolio Make It A Smart Investment

| About: Acuity Brands, (AYI)

Summary

Acuity Brands is following a smart strategy by expanding its product portfolio and focusing on technology improvements to benefit from the LED lighting market.

Acuity is looking to deliver integrated solutions to customers while it is also aiming to outperform the overall LED market in terms of the growth rate.

The difference between Acuity's forward and trailing P/Es shows that its earnings are expected to grow rapidly in the future, indicating more upside.

It isn't surprising to see that Acuity Brands (NYSE:AYI) is performing well this year. As LED lighting gains momentum, Acuity's prospects have improved and the company is making the most of the opportunity present in front of it.

According to a report:

Sales of LEDs that outpace incandescent bulbs in North America are expected to soon completely eliminate incandescent bulbs. The LED lighting market is anticipated to grow 45% per year through 2019. The LED lighting market at $4.8 billion in 2012 is anticipated to go to $42 billion by 2019. The reason is the declining price points, the increased interest by the channel in pushing LEDs to consumers. LEDs provide the best lighting solution. The phase out of incandescent lights has begun, the onset of LED command of the market is upon us.

Now, to tap this fast-growing market, Acuity is focusing on improving the efficiency of its product portfolio, along with expansion into key verticals of the LED lighting market.

Technological expertise and end-market developments will be a catalyst

Acuity's technological know-how is playing an important role in the company's growth. It is focusing on the appropriate usage and control of light while lowering the energy usage. As a result, the company is being able to develop intelligent lighting solutions. Now, since its products consume lower electricity and deliver bright lighting, the company should be able to see growth in interior and exterior conventional energy-efficient luminaires, solid-state devices, and lighting controls.

As such, Acuity is ramping up the portfolio of its solid-state luminaire and lighting control systems, which are finding adoption in both residential and commercial markets. Industrial and commercial, which is its biggest channel, is increasing at a rapid pace owing to increasing demand for renovation and new construction projects in the residential and non-residential markets.

Moreover, Acuity Brands is keenly focused on expanding and leveraging its solutions and product portfolio, apart from increasing its presence across markets. CEO Vernon J. Nagel is bullish on the company's growth prospects in the new fiscal year, and expects to achieve above-market growth rates due to improvement and renovation projects, innovative product launches, and foray into untouched channels.

According to a statement from the CEO:

Third-party forecasts as well as key leading indicators suggest that the growth rate for the North American lighting market, which includes renovation and retrofit activity, will be in the mid- to upper-single-digit range for fiscal 2015 with expectations that overall demand in our end markets will continue to experience solid growth over the next several years.

To outperform the broader market, the company is expanding its presence into the construction market where demand for energy-saving solutions should lead to the adoption of its products.

A broad product portfolio to tap the LED market

Acuity is continuing its fast pace of innovative product launches concerning the development of its product and lighting solutions, and thus, it is increasingly expanding its industry leading position and portfolio of unique lighting control solutions and energy-efficient luminaires. At present, Acuity Brands offers its customers over 1.7 million varieties of SKUs, thrice of what it offered in 2008.

Acuity Brands is also focusing on the growth of integrated lighting solutions for applications such as commercial office buildings, healthcare facilities, schools, and several outdoor applications to completely utilize its portfolio of lighting fixtures, components, and controls. In addition, Acuity is continuously developing luminaires comprising of varied light source technologies like organic LEDs, and is also expanding its superior portfolio of unique products.

The takeaway

Thus, Acuity Brands is progressing nicely to tap the growing market for LED lighting. At the same time, the company's valuation is also attractive. Trading at 32 times last year's earnings, Acuity might seem expensive at first. However, on a forward P/E basis, the stock is cheap at a P/E ratio of just 21. Additionally, the company's earnings are expected to grow at a decent double-digit rate of 13% over the next five years. Thus, Acuity Brands seems to be in a good position to deliver more upside going forward, making it a good investment prospect.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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