Roth Capital Starts Acuity Brands (AYI) at Neutral; Sees Bar Set High for Market Leader
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Roth Capital starts Acuity Brands, Inc. (NYSE: AYI) with a Neutral rating and $275 price target.
Analyst Craig Irwin noted the following with today's initiation:
- Acuity management deserves credit for successfully navigating the LED technology transition, moving early and achieving outsize leadership, while increasing company profitability. Acuity has averaged 100 bps annual operating margin gains since FY09, and over that time period has grown its LED systems revenue from a cold start to a $1.5bn+ annual revenue stream. The company focus now is growing "Tier-3" fully integrated intelligent lighting solutions, which contributed almost 10% of sales in fiscal 3Q16 (May), up about 40% over prior year levels.
- Acuity's distribution channel remains one of its most important assets, in our view. The company’s network of around 200 value added resellers are all number one or two in their respective geography, and have an average of 30 years experience working with Acuity.
- We expect acquisitions to continue shaping Acuity's long-term growth trajectory. The Dec-15 Juno acquisition likely benefits from SKU diversification and channel integration, lifting the ~10% share at the time of acquisition closer to Acuity's average by the end of FY17. We expect Acuity to start pursuing European acquisitions within the next few quarters, as this remains the last major market where Acuity has limited exposure
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