Acuity Brands, Inc. (AYI): Can This Stock Keep Lighting Up Your Portfolio?

One explanation for this is the late spring this year, plus delays over worries with issues like the sequester and payroll taxes.

Moreover there are some peculiar recent dynamics which can be seen in the ABI data.

The recent weakness in the commercial/industrial (C & I) sector is concerning because it’s Acuity’s strongest end market. The hope is that new residential construction will feed into new C & I construction as infrastructure is built up around the new housing. Unfortunately, it hasn’t happened yet.

Other companies have talked of weakness. REGAL-BELOIT CORPORATION (NYSE:RBC) revealed a shocker of an earnings announcement at the end of April. The company makes the kinds of motors used in heating, ventilation and air conditioning systems.

Regal lost a major contract when a customer decided to source components from a third party (rather than buy from Regal Beloit and manufacture themselves) and, overall its commentary on its C & I markets was poor. Guidance was lowered and, the strength that it had seen in January fell away through the quarter. The ABI data has weakened since then so it’s anybody’s guess what it will say in its next set of results. On the other hand, it’s cheap on a cash flow basis and, this could be a decent entry point.

The bottom line

In conclusion, you need to believe in both these drivers to want to buy Acuity Brands, Inc. (NYSE:AYI) at this level. While secular growth looks assured, it is far from clear that the cyclical growth is. On a trailing PE ratio of nearly 32, compared to its smaller rival Hubbell at 20, the stock is not cheap. I share some of the optimism over this company, but a strong and sustained recovery in the C & I market is not a “done deal.”  That makes Acuity one for the monitor list.

The article Can This Stock Keep Lighting Up Your Portfolio? originally appeared on Fool.com and is written by Lee Samaha.

Lee Samaha has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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