Acuity Brands (AYI, Financial) has entered the new fiscal year strongly with record quarterly results. The company delivered a strong operational performance that resulted in a handsome 13% growth in sales. Management is now confident of performing better going forward. In addition, it is also working on some key strategic initiatives that can accelerate its growth story. Let us take a closer look.
Focus on diversification
Diversification helped the company in the end markets. Acuity Brands is now undertaking several other strategies which can further add value to its existing strategies. Under the new ones, Acuity will be laser focused on innovations which are expected to give new dimensions to it and will also help it to extend its leadership position across North America.
Seeing the growth across its channels, Acuity is having expansion as its key strategy to stretch its footprint across various channels and geographies. The improvement in customer service will further improve its productivity. Moreover, Acuity Brands is expecting the lighting industry to grow more over the next decade giving bright opportunities for the company. This growth in the lighting industry is also expected to play an important role in the internet of things market. This market is also a billion dollar business these days, and this kind of growth in it is a clear indication of strong growth opportunities for Acuity Brands in the future.
Adding value
Acuity is engaged in leveraging its leadership position by further adding value to its market-leading solution portfolio. This will not only attract investors but also add value to the existing shareholders. To maintain this position, Acuity is also making significant investments which will support its expansion in the significant end markets. It also has many innovations lined up.
Under this, Acuity has come up with integrated tiered solution strategy that looks in good shape. In addition, on this strong platform the company has already introduced holistic lighting solutions such as connected smart lighting with smartphones which are well accepted in the market. Some of these strategies and new introduction by the company are expected to contribute well to its growth and financials in future.
Besides the positive outlook for 2015, the company is expected to face some headwinds also which might hurt some of its profit margins. Besides the pricing in the LED component, the company is expecting some weakness as it is expecting the overall input costs to be at higher levels due to the rise in some of the important commodity prices.
However, the American market will be its major contributor as it is seeing some good improvements in the key areas such as architectural billing index, vacancy rates, office absorption, favourable employment trends and residential construction. All these will ramp up the demands for the lighting solution giving good opportunities to the company.
Conclusion
With a trailing P/E of 36.80 the stock looks slightly expensive but looking at its forward P/E of 23.48, good earnings growth even in the near term can be seen. At this growth rate, a profit margin of 7.40% will be an added advantage to the investors. Moreover, the forecasts about the lighting market in 2015 are also strong which will surely help Acuity Brands to gain market share in future. Thus, Acuity Brands is a good pick, worth your dollars as of now.
