Acuity Brands price target raised to $320 from $285 at Wells Fargo

Investing.com - Wells Fargo (NYSE:WFC) raised its price target on Acuity Brands (NYSE:AYI) to $320 from $285 on Thursday, while maintaining an Equal Weight rating on the lighting and building management solutions provider. The new target represents potential upside from the current price of $304.18, though InvestingPro analysis suggests the stock is currently trading above its Fair Value.

The firm cited Acuity’s strong third-quarter performance, which included a gross margin of 50% and an adjusted operating margin of nearly 24% in its Quantum, Spatial, and Controls (QSC) segment, both significantly exceeding expectations. The company’s overall financial health is rated as GOOD by InvestingPro, with a trailing twelve-month gross margin of 46.94% and strong return metrics. Wells Fargo noted that the margin strength came from volume leverage rather than tariff pricing impacts.

The research firm adjusted its fiscal 2025 adjusted earnings per share estimate to $17.72 from $17.20 and its fiscal 2026 forecast to $19.10 from $18.39, with a calendar year 2026 estimate of approximately $19.60. The new price target represents a 16.5x multiple on Wells Fargo’s calendar year 2026 earnings projection.

Despite near-term uncertainties, InvestingPro data shows 3 analysts have revised their earnings upwards for the upcoming period, with the stock delivering an impressive 11.39% return over the past week. Wells Fargo highlighted uncertainty around fourth-quarter performance, noting potential sequential revenue headwinds and margin impacts from lower volume and tariff price/cost factors. The firm models Acuity’s Acuity Brands Lighting (ABL) revenue down 0.5% year-over-year in the fourth quarter with total gross margin of 48.9%.

The QSC segment showed particular strength in the third quarter with revenue growth exceeding 20% year-over-year and operating margins jumping to nearly 24% from approximately 17% in the same quarter last year, driven by strong top-line growth, new product momentum, and early adoption of productivity initiatives. For deeper insights into Acuity Brands’ performance metrics and additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.

In other recent news, Acuity Brands reported impressive financial results for the third quarter of fiscal year 2025, surpassing market expectations. The company achieved an earnings per share of $5.12, notably higher than the forecasted $4.3, and reported revenue of $1.2 billion, exceeding the anticipated $1.15 billion. This performance marks a 22% year-over-year increase in net sales, driven by organic growth and strategic acquisitions, including QSC. Adjusted operating profit rose by 33% to $222 million, with a margin of 18.8%, up 150 basis points from the previous year.

William Blair reiterated its outperform rating on Acuity Brands, expressing confidence in the sustainability of the company’s 50% gross margins despite potential tariff impacts. The firm adjusted its fourth-quarter sales estimate downward, anticipating lighter demand following pricing actions. However, it remains optimistic about Acuity’s ability to manage tariffs better than its peers. The Intelligent Spaces Group segment showed strong margin performance, with QSC margins progressing faster than expected.

Acuity Brands continues to focus on innovation with new product launches, such as the Wireless Sensor Switch Air and Animate Controller by nLIGHT (NASDAQ:LASR), enhancing its market presence. The company maintains a conservative planning approach, expecting normalized performance in upcoming quarters while remaining committed to productivity and margin expansion. The firm is confident in navigating potential tariff changes and continues to invest in growth opportunities.

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