The slightly moderated and lower-than-expected inflation in July 2022 and a red-hot job market have renewed investors’ optimism about the stock market, as evident from the recent gains of the benchmark indexes. Moreover, the higher-than-expected U.S. consumer sentiment in August added to the optimism.
However, the series of better-than-expected economic data could make the Fed maintain its hawkish stance as inflation remains elevated. This and the tensions between the U.S. and China over Taiwan might keep up the market volatility in the near term.
Given this backdrop, it could be wise to invest in profitable stocks Acuity Brands, Inc. (AYI) and Semtech Corporation (SMTC) now, which are currently trading at discounts to their peers.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions internationally that operate through Acuity Brands Lighting and Lighting Controls (ABL); and the Intelligent Spaces Group (ISG) segments. It serves electrical distributors, retail home improvement centers, electric utilities, national accounts, digital retailers, lighting showrooms, energy service companies, and system integrators.
On January 12, 2022, AYI expanded its collaboration with Microsoft Corporation (MSFT) to bring new capabilities to Acuity Brands' smart lighting, lighting controls, and building automation solutions.
Combining MSFT’s Cloud for Sustainability and Microsoft Azure IoT with AYI’s customer solutions will enable their end customers to operate many facilities and buildings and forecast and calculate the environmental and financial impacts these new capabilities deliver.
For the fiscal 2022 third quarter ended May 31, 2022, AYI’s net sales increased 17.9% year-over-year to $1.06 billion. The company’s gross profit came in at $445.10 million, representing a 15.1% rise from the year-ago period. Its adjusted operating profit came in at $162.80 million for the quarter, up 19% from the prior-year period.
While its adjusted net income increased 20.8% year-over-year to $121.30 million, its adjusted EPS rose 27.1% to $3.52. As of May 31, 2022, the company had $318.20 million in cash and cash equivalents.
Analysts expect the company’s EPS to be $12.61 for fiscal 2022 ending August 30, 2022, representing a 24% rise from the prior-year period. AYI surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
The consensus revenue estimate of $3.99 billion for the same fiscal year indicates a 15.2% year-over-year improvement. Its EPS is expected to grow at a rate of 12.8% per annum over the next five years.
Its 10.14% trailing-12-month ROA is 97.3% higher than the 5.14% industry average. The company’s trailing-12-month EBITDA margin of 15.12% is 16.9% higher than the industry average of 12.94%.
The stock’s 14.51x non-GAAP forward P/E is 13.3% lower than the 16.74x industry average. In terms of forward EV/EBIT, AYI’s 9.7x, 13.9% lower than the 11.27x industry average. Over the past month, the stock has gained 14% to close the last trading session at $183.24.
AYI’s POWR Ratings reflect this promising outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Growth and Value. Click here to see the additional ratings for AYI’s Momentum, Sentiment, and Stability.
AYI is ranked #2 of 62 stocks in the C-rated Home Improvement & Goods industry.
Semtech Corporation (SMTC)
SMTC designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms internationally. It serves OEMs and their suppliers in the enterprise computing, communications, and consumer and industrial end-markets.
It sells its products directly, as well as through independent sales representative firms and independent distributors.
On August 2, 2022, SMTC announced a definitive agreement to acquire all outstanding shares of Sierra Wireless, Inc. (SWIR), a leading Internet of Things (IoT) solutions provider, for approximately $1.20 billion.
SMTC’s revenue for its fiscal 2022 second quarter ended June 30, 2022, increased 47.5% year-over-year to $74.69 million. The company’s pre-tax income came in at $41.51 million, up 211.5% from the prior-year period.
Its net earnings came in at $32.13 million, representing a 316.1% rise from the prior-year period. SMTC’s EPS increased 300% year-over-year to $0.44. It had $61.18 million in cash and equivalents as of June 30, 2022.
Analysts expect an EPS estimate of $2.62 for fiscal 2023 ending January 31, 2023, indicating a rise of 36.7% from the prior-year period. The consensus revenue estimate of $834.38 million for the same fiscal year represents a 12.6% year-over-year improvement. Its EPS is expected to grow at a rate of 11.5% per annum over the next five years.
Its 12.56% trailing-12-month ROA is 344.4% higher than the 2.82% industry average. The company’s trailing-12-month EBITDA margin of 25.27% is 94.6% higher than the industry average of 12.99%.
The stock’s 16.05x non-GAAP forward P/E is 17.3% lower than the 19.41x industry average. In terms of forward EV/EBIT, SMTC’s 13.31x is 21.9% lower than the 17.03x industry average. Over the past month, the stock has gained 3.7% to close the last trading session at $54.41.
SMTC’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. In addition to the POWR Ratings grades we have just highlighted, one can see SMTC’s Sentiment, Momentum, and Stability ratings here.
SMTC is ranked #3 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
AYI shares were unchanged in premarket trading Monday. Year-to-date, AYI has declined -13.26%, versus a -10.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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