Construction Stocks

Acuity Brands Inc Valuation – Initial Coverage $AYI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Acuity Brands Inc (AYI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Acuity Brands, Inc. is a provider of lighting solutions for commercial, institutional, industrial, infrastructure and residential applications throughout North America and other international markets. The Company operates through North American segment. The Company offers a portfolio of indoor and outdoor lighting and building management solutions for commercial, institutional, industrial, infrastructure and residential applications. The portfolio of lighting solutions include lighting products utilizing fluorescent, light emitting diode (LED), organic LED (OLED), high intensity discharge, metal halide, and incandescent light sources to illuminate a number of applications. The solutions portfolio of the Company also includes modular wiring, LED drivers, sensors, glass and inverters sold primarily to original equipment manufacturers (OEMs). Its lighting and building management solutions are marketed under various brand names, including Lithonia Lighting and Holophane.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AYI – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,520,128,824 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.22 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 169.29% Pass
6. Moderate PEmg Ratio PEmg < 20 34.45 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.45 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.22 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.48 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $6.22
MG Growth Estimate 15.00%
MG Value $239.57
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $90.23
MG Value based on 0% Growth $52.89
Market Implied Growth Rate 12.97%
Current Price $214.37
% of Intrinsic Value 89.48%

Acuity Brands, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.57 in 2013 to an estimated $6.22 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 12.97% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Acuity Brands, Inc. revealed the company was trading above its Graham Number of $84.83. The company pays a dividend of $0.52 per share, for a yield of 0.2% Its PEmg (price over earnings per share – ModernGraham) was 34.45, which was above the industry average of 28.49. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.79.

Acuity Brands, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.79
Graham Number $84.83
PEmg 34.45
Current Ratio 2.22
PB Ratio 5.45
Current Dividend $0.52
Dividend Yield 0.24%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $1,356,200,000
Total Current Liabilities $609,800,000
Long-Term Debt $355,700,000
Total Assets $2,963,400,000
Intangible Assets $1,314,600,000
Total Liabilities $1,233,300,000
Shares Outstanding (Diluted Average) 44,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.10
Aug2016 $6.63
Aug2015 $5.09
Aug2014 $4.05
Aug2013 $2.95
Aug2012 $2.72
Aug2011 $2.42
Aug2010 $1.80
Aug2009 $2.00
Aug2008 $3.56
Aug2007 $3.37
Aug2006 $2.34
Aug2005 $1.17
Aug2004 $1.56
Aug2003 $1.15
Aug2002 $1.26
Aug2001 $0.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.22
Aug2016 $4.95
Aug2015 $3.89
Aug2014 $3.12
Aug2013 $2.57
Aug2012 $2.42
Aug2011 $2.39
Aug2010 $2.45
Aug2009 $2.68
Aug2008 $2.81
Aug2007 $2.27
Aug2006 $1.64
Aug2005 $1.27
Aug2004 $1.21
Aug2003 $0.92
Aug2002 $0.68
Aug2001 $0.33

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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