Roth Capital Assumes LSI Industries (LYTS) at Buy; Positive on New Management, Down Lighting Opportunity
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Roth Capital starts LSI Industries (Nasdaq: LYTS) with a Buy rating and $14 price taget.
Analyst Craig Irwin noted the following with today's initiation:
- LSI is an image solutions company serving growing demand from customers with overlapping needs in the $14bn lighting market and the $25bn corporate graphics market. The company is a top-10 provider of graphic and image solutions, including a range of printed, digital, and screen graphics solutions, and a top-10 manufacturer of indoor and outdoor lighting products, and lighting control systems.
- New leadership has brought fresh ideas, experience, and execution capabilities facilitating a rapid rebound in company profitability. Company founder Bob Ready passed the baton to Dennis Wells naming him CEO in November 2014, and stepping up to the board as Chairman. Since that time LSI has achieved a rapid rebound in profitability with net income rising from $0.9m in FY14 (Jun) to $5.2 million profit in FY15, and we project a $11.7m profit in FY17. Longer-term gross margin guidance of 30%, vs. our forecast of 26.2% in FY17, and some peers over 40%, suggests plenty of headroom for further gains.
- We see a discrete opportunity in down lighting fixtures on channel turbulence as the most likely driver of revenue upside vs. our model. LSI could capture a portion of the roughly $150m in agency down lighting business that Acuity (AYI - Neutral) cut free at the time of the Juno acquisition, given the rapid Inspire product line introduction, and around half of LSI's agencies previously represented Juno.
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