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Bear Of The Day: Acuity Brands (AYI)

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Acuity Brands (AYI - Free Report) is a Zacks Rank #5 (Strong Sell) yet five months ago it was a Zacks Rank #1 (Strong Buy) and it was the Bull of the Day.  So what happened that this one is now at the lowest Zacks Rank and the Bear of the Day? Let's take a deeper look in this Bear of the Day article.

Description

Headquartered in Atlanta, GA, Acuity Brands, Inc. (AYI - Free Report) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries. The company manufactures and distributes lighting fixtures and related components that comprise devices such as luminaires, lighting controls, and controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications.

Earnings History

As I look back at the earnings history for AYI, I see mostly good results.  There were three beats in the last four reports, and investors love to see that.  

The problem is that more recent quarter, it was a miss.  A small miss of only 3 cents or about 1%, but still a miss.  The real issue here is the guide lower.

The company sees the next quarter revenues down mid to high single digit on a year over year basis.  So we can guess that means a roughly 5% - 8% decline which put the guide at approximately $850M - $885M for the topline.  The problem is the street consensus was at $935M at the time, so this means that estimates are going to be hit.

Earnings Estimates

With cut in revenue guidance, earnings estimate fell for AYI.  The Zacks Consensus Estimate was $2.50 but it slipped to $2.25 for the current quarter.

Next quarter saw 3 cents come off the top.

The full year estiamte fell from $10.32 to $9.85 but there was no change to next years numbers.

Valuation

With the guide lower and the stock dropping, the valuation has gotten much better.  I see 12x forward earnings and that is well below the market multiple of around 18x.  THe topline is contracting, yet the market still gives the stock value for incremental sales as the price to sales multiple stays over 1x at 1.34x.

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