Acuity Brands Is Lighting Up Another Buying Opportunity Acuity Brands, Inc.'s (NYSE: AYI) post-earnings release fall in share prices can only be viewed as a buying opportunity because this company is giving the market what it wants when...

Acuity Brands Falls On Revenue, Margin Strength

Acuity Brands, Inc.'s (NYSE: AYI) post-earnings release fall in share prices can only be viewed as a buying opportunity because this company is giving the market what it wants when few are able to do so. Acuity Brands is not only growing the top line but it is widening margins and growing the bottom line too, and its business is supported by secular tailwinds that are blowing through the economy. In our view, the company's results are not only strong but an acceleration of business that has yet to reach its peak.

Acuity Brands Impresses The Analysts

Industrial lighting manufacturer Acuity Brands reported $926.1 million in consolidated revenue for a gain of 16.9% over last year. This not only reverses declines in the previous two years but is the second consecutive quarter of revenue acceleration and is 530 basis points better than the Marketbeat.com consensus estimate. The strength was driven by gains in both the Acuity Brands and Intelligent Spaces Group segments which grew 17.3% and 13.7% respectively. The best news, however, is that gross margin held up well under the pressure of supply chain and labor challenges and the operating margin widened.

Moving down to the income, the company's gross margin contracted by 30 basis points leaving gross income up 16.1% compared to the 16.9% for revenue. This is due in large part to price increases that are, so far, keeping up with rising input costs. On the bottom line, the operating margin widened 160 basis points due to price, mix, and internal efficiencies and left the GAAP and adjusted earnings well above consensus as well. The GAAP EPS of $2.46 is up 56% from last year due to a lower share count and beat the consensus by $0.38 while the adjusted $2.85 beat by $0.44.

Turning to the balance sheet, the company's cash position is down but that is offset by an increase in receivables and inventory that have net assets up on a YOY basis. The takeaway is that the balance sheet is still in great shape, debt levels are holding steady, and cash/free cash flow is on the rise. This is fueling a safe but small 0.25% dividend yield and share repurchases. The company repurchased 0.3 million shares during the quarter bringing the total bought back to over 12% and there are still 3.5 million shares or about 10% of the current shares outstanding left under the buyback authorization.

The Analysts Up Their Price Targets For Acuity Brands

Acuity Brands has 9 analysts actively watching the stock and, so far, 3 of them have upped their price targets in the wake of the report. The new consensus rating is $205 which assumes the stock is fairly valued right now but that does not truly reflect the most recent sentiment. The three most recent targets include the new high price target of $250 and has the stock trading closer to $247.50. That implies about 22% of the upside and we see the estimates trending upward well into 2022.

The Technical Outlook: Acuity Brands Slips To Support

Shares of Acuity Brands fell more than 5.0% in the wake of the Q1 report but we think this is mostly profit-taking and not a reversal in price action. The stock price fell below the short-term EMA but is still well above key support at the bottom of the recent trading range. Assuming support at the $195 level holds we see this stock moving sideways in the near to short term and then breaking out to the upside later in the year.