AYI Stock Trades Near 52-Week High: Is it Still Worth Buying?
Acuity Brands, Inc. AYI has captured the attention of investors in the market recently with its impressive performance. After hovering around $300.00 per share for the past four trading sessions, the stock reached a new 52-week high of $307.25 on Friday. It then pulled back slightly to close the trading session at $306.83, marking a 2.9% increase from the previous day's closing price of $298.03.
Shares of AYI have surged 28.7% over the past three months, outperforming the 27.9% gain in the Zacks Building Products - Lighting industry. The stock has also surpassed the broader Construction sector's growth of 18.8% and S&P 500 2.5% gain during the same period.
This Atlanta, GA-based manufacturer and distributor of lighting fixtures and related components is capitalizing on its strategic initiatives to enhance product vitality, elevate service levels, and integrate technology to optimize both product offerings and business operations. Its emphasis on product innovation and cost-saving initiatives continues to drive productivity and growth.
Image Source: Zacks Investment Research
The company has also outperformed some other industry players like LSI Industries Inc. LYTS, AMETEK, Inc. AME and Orion Energy Systems, Inc. OESX in the past three months. During the said time frame, shares of LYTS and AME have rallied 16.3% and 1%, respectively, while those of OESX have lost 16.5%.
Key Fundamentals Supporting AYI's Stock Growth
Product Innovation: Acuity Brands prioritizes product innovation to maintain a competitive edge in the lighting industry. The company actively enhances its diverse portfolio to meet the changing needs of its customers while prioritizing energy efficiency and advanced functionality. It continually adapts to market trends and focuses on innovative solutions to strengthen its position and drive future growth.
The company is dedicated to exploring new market segments, particularly in the refueling sector, which encompasses service stations, convenience stores, and quick-service restaurants. It is developing tailored solutions to meet the unique needs of these applications while enhancing its existing product lines. The company is enhancing its portfolio to support various industries, including horticulture, through both organic growth and strategic development initiatives.
Cost-Saving Initiatives: Apart from ongoing product vitality efforts, the company’s portfolio realignment has enabled strategic price management in a dynamic market. Furthermore, enhancements in supply chain productivity are continuously improving processes and managing costs.
The company continues to report year-over-year margin improvement. During the fourth quarter of fiscal 2024, adjusted operating margin expanded 120 basis points (bps) year over year to 17.3%. This improvement was primarily driven by a significant rise in gross profit margin, aided by product vitality, effective price and cost management, and productivity enhancements.
Owing to effective cost management and productivity enhancements, AYI expects adjusted earnings per share (EPS) for fiscal 2025 to be in the range of $16-$17.50, up from $15.56 reported in fiscal 2024.
Strengthening the Intelligent Spaces Group: The company actively pursues advancements in the intelligence and sustainability of spaces by offering innovative solutions and services. This approach aims to enhance safety and efficiency while improving the overall experience for occupants.
The Intelligent Spaces business focuses on delivering significant benefits for end-users through innovative technologies that drive strong financial performance. The company is expanding its addressable market while achieving sales growth and improved margins. Its open edge-to-cloud solutions are designed to enhance the occupant experience while reducing energy and operational costs in buildings.
The company believes that its organic and inorganic efforts will continue to drive the development and acquisition of disruptive technologies. These technologies aim to integrate data in new ways to enhance user outcomes.
Strong Cash Flow and Efficient Capital Allocation: Acuity Brands continues to showcase strong cash generation, reflecting its operational efficiency and financial health. In fiscal 2024, the company reported cash provided by operating activities of $619.2 million, marking a 7.1% year over year increase. Free cash flow also saw an impressive rise, up 8.6% year over year to $555.2 million. This solid cash flow performance highlights the company's ability to generate consistent returns while maintaining a robust financial position.
The company has established a solid record of effective capital management, focusing on investing in its current businesses to drive growth and pursuing strategic mergers and acquisitions. AYI maintains a healthy pipeline of M&A opportunities to enhance its market position.
The company is also committed to enhancing shareholder value. On Jan. 25, 2024, the board of directors approved a 15% increase in its quarterly dividend, raising the payout to 15 cents per share, up from the previous 13 cents per share. Along with dividend growth, AYI actively repurchases shares, reinforcing its disciplined approach to capital allocation. This strategy supports both the company’s long-term growth ambitions and its objective of delivering enhanced returns to shareholders.
Estimate Revision of AYI Stock
The Zacks Consensus Estimate for AYI’s fiscal 2025 and 2026 earnings has trended upward in the past seven days. Over the last week, forecasts for fiscal 2025 and 2026 have increased to $16.66 (from $16.48) and $17.95 (from $17.84), respectively, indicating growth of 7.1% and 7.7%.
AYI Trading at a Premium
AYI stock is currently slightly overvalued compared to its industry, as shown in the chart below. A high valuation raises concerns about the sustainability of its current price if the company's future performance does not meet investors’ expectations.
Image Source: Zacks Investment Research
Why is AYI Stock Still a Buy?
Despite high valuation, AYI stock remains a compelling investment opportunity for those seeking exposure to the lighting industry. The company continues to focus on product innovation and cost-saving initiatives while strategically realigning its portfolio to enhance market position. With strong financials and upward estimate revisions for fiscal 2025, AYI demonstrates the potential for continued growth.
This Zacks Rank #2 (Buy) company is well-positioned to leverage its operational efficiencies and advancements in the Intelligent Spaces Group. Its commitment to enhancing shareholder value through disciplined capital allocation and a robust dividend policy further supports its long-term growth potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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