Valens Equity Weekly Insights - 2022 08 30
Acuity Brands (AYI) is the best positioned company to implement smart, connected lighting solutions as more companies and individuals look to adopt more IoT solutions. It is making smart investments into platforms to support its lighting solutions. Uniform Accounting highlights that the market is pricing in a reversal of recent profitability expansion, but management is confident about its momentum and is aligned to continue executing on improving profitability, signaling the potential for equity upside as the company continues executing.Acuity has been investing heavily in the next wave of connected lights, including solutions that will help buildings manage their systems remotely. Its new innovative lighting solutions and platforms to support those lights will push clients towards a new investment cycle, which should drive profitability in the coming years. If the company is able to continue executing, keeping returns stable or improving, it should be able to beat market expectations.
AYI's management is closely aligned to focus on margins and asset efficiency, which should drive profitability expansion.
Management confidence in the Q3 earnings call about their growth and profitability, product reception, and cash flow generation suggest management continues executing.
AYI
Acuity Brands is a provider of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications. The company's lighting and building management solutions include devices such as luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed for various indoor and outdoor applications. In addition, the company provides services across applications that primarily relate to monitoring and controlling lighting and building management systems through network technologies and the commissioning of control systems.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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