Acuity Brands, Inc. (NYSE:AYI) stock has already jumped by more than 28% so far this year and that trend is unlikely to wane, as Acuity Brands posted strong earnings this morning for its fiscal third quarter of 2015, which ended on May 31. The company, which provides lighting solutions for a variety of consumer and business segments, reported diluted EPS of $1.48 for the quarter, 47% more than the same period a year ago. That figure also handily beat the consensus EPS estimate EPS of $1.34. The company’s revenue increased by 13% year-over-year to $683.7 million, but came slightly short of the consensus forecast of $686.94 million. Heading into this earnings release, there were a lot of upgrades from analysts for Acuity Brands, Inc. (NYSE:AYI) in the last few days. Stifel Nicolaus analyst set a price target of $188 to $195 on the stock with a ‘Buy’ rating on Tuesday, while Canaccord Genuity analysts set a price target of $192 on the stock with a ‘Buy’ rating on Monday.
Hedge funds were also bullishly expanding their positions in the stock heading towards this earnings report, as there were 32 hedge funds holding long positions in the stock at the end of first quarter, which was up from 28 at the end of the fourth quarter. There was also a 36% increase in aggregate capital invested by these hedge funds, with them holding $460.98 million in shares by the end of the first quarter. While Acuity Brands, Inc. (NYSE:AYI)’s shares increased by 19% in the first quarter, the overall increase shows the smart money was not just benefiting from the gains, but adding onto their positions. Shares were up by another 7% in the second quarter.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 85 percentage points since the end of August 2012 when this system went live, returning a cumulative 145% vs. less than 60% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Let’s take a look at the insider activity on Acuity Brands, Inc. (NYSE:AYI). There were no insider purchase of the stock so far this year, but there were some insiders selling shares of the company the first quarter. Chief Financial Officer Richard Reece sold around 49,350 shares of the company in January. Also during the first quarter, CEO Vernon Nagel sold around 6,300 shares, and Director Robert McCullough sold around 1,800 shares.
With all of this in mind, let’s take a look at the fresh hedge fund activity on Acuity Brands, Inc. (NYSE:AYI).
What have hedge funds been doing with Acuity Brands, Inc. (NYSE:AYI)?
According to Insider Monkey’s database, Capital Growth Management, managed by Ken Heebner, holds the largest position in Acuity Brands, Inc. (NYSE:AYI). Capital Growth Management holds around 385,000 shares valued at $64.7 million, comprising 1.8% of its 13F portfolio. Following Capital Growth Management is Sirios Capital Management, led by John Brennan, with 338,000 shares worth $56.9 million at the end of the first quarter; 2.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism encompass Ken Griffin‘s Citadel Investment Group, Jim Simons’ Renaissance Technologies, and Israel Englander’s Millennium Management.
As one would reasonably expect, specific hedge fund managers have been driving this bullishness by opening fresh positions in the stock in the first quarter. Capital Growth Management, managed by Ken Heebner also leads the way in this category, as its $64.7 million position was a newly-opened one. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also initiated a $5.8 million position during the quarter. The following funds were also among the new Acuity Brands investors: Robert B. Gillam’s McKinley Capital Management, Bruce Kovner’s Caxton Associates LP, and Brian Taylor‘s Pine River Capital Management.
Hedge fund managers and analysts have been bullish on this company, and it has delivered with solid results, managing to beat the EPS expectations of The Street and display big year-over-year EPS growth of 47%. Hedge funds were right to back this stock.
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