Does Acuity Brands Have More Room to Run?

The stock is up more than 15%

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Nicholas Kitonyi
Mar 31, 2021
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Shares of electrical equipment and parts manufacturer Acuity Brands Inc. (

AYI, Financial) are up more than 15% following the announcement of its second-quarter 2021 results on Wednesday morning.

Acuity Brands has now gained more than 123% since bottoming on March 20, 2020. At the current price of about $168 per share, Acuity is trading at the highest level since the start of 2018. This suggests the share price may have rallied too much to leave room for more upward movement.

This rally has propelled the stock to a price-earnings ratio of 26.23, which is higher than the Peter Lynch fair valuation of 15.

Highlights from recent quarterly results

For the most recent quarter, Acuity reported net sales of $776.6 million, representing a 5.8% decline compared to the prior-year period.

Diluted earnings per share increased 20.8% year over year to $1.74 while adjusted earnings grew 15.2% to $2.12. Analysts were expecting the company to post adjusted earnings per share of $1.69.

In a statement, CEO Neil Ashe praised Acuity's strong quarterly performance, citing the ability to control costs consistently as one of the reasons the company delivered strong margins.

"I am very proud of our team for another quarter of solid performance. We continue to see signs of a modest recovery in the wider market, while our margin expansion reflects the hard work of our associates who continue to control costs in a more consistent and predictable way," he said.

The company's gross profit margin increased by 170 basis points to 43.4%, up from 41.7% posted in the year-ago quarter.

Valuation

From a valuation perspective, shares of Acuity are trading at a trailing price-earnings ratio of 26.23. This is relatively lower than close peer Advanced Energy Industries Inc.'s (

AEIS, Financial) equivalent of 30.23. On the other hand, EnerSys Inc. (ENS, Financial) trades at a trailing price-earnings ratio of 36.57.

The company's forward price-earnings ratio of 16.26 is just slightly lower than Advanced Energy's multiple of 16.46 and EnerSys' ratio of 16.83. This suggests the earnings of the two competitors are expected to grow at a higher rate than Acuity Brand's growth in the next 12 months.

Therefore, while Acuity may appear significantly undervalued compared to peers now, there won't be much of a difference in 12 months if investors respond based on earnings performance.

In summary, shares of Acuity appear to be relatively undervalued compared to its close peers. However, this might change in the coming quarters. Therefore, there may not be enough room left to run now, especially after Wednesday's post-earnings rally.

Disclosure: No positions.

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Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites. Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.