This week brings a slew of data for investors to chew over, including the March jobs report and quarterly earnings result of Acuity Brands, Inc. (AYI), MSC Industrial Direct Co., Inc. (MSM), and Resources Connection, Inc. (RGP). Let’s explore the strong fundamentals and earnings potential of these stocks.
Last month the Federal Reserve initiated its ninth consecutive rate hike with a 25-basis-point increase in the interest rates as opposed to an expected pause. However, Fed Chair Jerome Powell hinted that the hike might be the last.
The current market outlook remains choppy, as the banking crisis resulting from the collapse of Silicon Valley Bank, rising interest rates, an inverted yield curve, and other key metrics don’t bode well for the chances of the United States escaping a recession.
However, heading into the short week ahead, the three major indices finished the first quarter higher despite a scare in the banking sector. The Nasdaq Composite led the way with a gain of 16.8%, while the S&P 500 rose 7% in the first three months of the year for its second-straight positive quarter.
Strong fundamentals combined with analyst ratings and the earnings forecast for the quarter that ended February 2023 might be beneficial for investors investing in AYI, MSM, and RGP in terms of price gains. Hence, these stocks could be worth checking out now.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).
On March 31, AYI declared a quarterly dividend of $0.13 per share to its shareholders, payable on May 1, 2023. Its four-year average dividend yield is 0.36%, and its current dividend of $0.52 translates to a 0.28% yield on the current price level.
AYI’s net sales increased 7.8% year-over-year to $997.90 million in the first quarter that ended November 30, 2022. The company’s non-GAAP net income increased 6.1% from the year-ago value to $107.50 million, while its adjusted operating profit grew 5.3% year-over-year to $140.10 million.
The company’s non-GAAP EPS rose 15.4% from the prior-year quarter to $3.29. In addition, its adjusted EBITDA increased 4.1% year-over-year to $153 million.
In terms of forward non-GAAP P/E, AYI is trading at 13.28x, 21.7% lower than the industry average of 16.95x. The stock’s forward EV/EBIT multiple of 10.28 is 31% lower than the industry average of 14.90. Also, its forward EV/EBITDA multiple of 9.42 compares to the industry average of 10.61.
Analysts expect AYI’s EPS and revenue to increase 6.2% and 5.4% year-over-year to $2.73 and $958.46 million, respectively, in the fiscal second quarter (ended February 2023). The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
It has gained 18.6% over the past nine months to close the last trading session at $182.73.
AYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Quality and a B for Value. Among the 56 stocks in the Home Improvement & Goods industry, it is ranked first. Click here to see the additional POWR Ratings for AYI (Growth, Momentum, Stability, and Sentiment).
MSC Industrial Direct Co., Inc. (MSM)
MSM distributes metalworking and Maintenance, Repair, and Operations (MRO) products and services. Its MRO products include cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock products, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, material handling products, electrical supplies, and power transmission components.
On March 22, the company declared a dividend of $0.79 per share, payable to its shareholders on April 25, 2023. MSM’s four-year average dividend yield is 6.90%, and its current dividend of $3.16 translates to a 3.76% yield on prevailing prices. Its dividend payouts have grown at a 2.3% CAGR over the past three years and a 9.5% CAGR over the past five years.
On January 11, MSM acquired Buckeye Industrial Supply Co., an independent metalworking distributor based in Columbus, Ohio, and Tru-Edge Grinding Inc., an Ohio-based custom tool manufacturer. The acquisition of these Ohio-based Companies is expected to support the growth of the company's metalworking leadership position and expand its footprint in the Midwest.
In terms of forward EV/EBITDA and EV/EBIT, MSM is trading at 9.80x and 11.26x, 7.7% and 24.5% lower than the industry averages of 10.61x and 14.90x, respectively. Also, its forward Price/Cash Flow multiple of 10.67 compares to the industry average of 12.66.
For the fiscal first quarter, which ended December 3, 2022, MSM’s net sales increased 12.9% year-over-year to $957.75 million. The company’s adjusted income from operations and attributable net income increased 23.2% and 18.6% year-over-year to $118.26 million and $83.01 million, respectively. Also, its adjusted EPS came in at $1.48, representing an 18.4% increase year-over-year.
Street expects MSM’s EPS and revenue to increase 5.4% and 8.4% year-over-year to $1.36 and $934.76 million, respectively, in the fiscal second quarter that ended on February 28, 2023. It surpassed consensus EPS estimates in each of the trailing four quarters, which is excellent.
Over the past six months, the stock has gained 15.4% to close the last trading session at $84.00.
MSM’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Momentum, Sentiment, and Quality. It is ranked #24 out of 89 stocks in the Industrial - Equipment industry. To see the other ratings of MSM for Growth, Value, and Stability, click here.
Resources Connection, Inc. (RGP)
RGP is a global consulting company that operates through three segments: Resources Global Professionals (RGP); Taskforce; and Sitrick. It offers services in the areas of transactions, including integration and divestitures, bankruptcy, going public readiness and support, financial process optimization, system implementation, and regulations.
On March 16, the company paid a dividend of $0.14 per share. RGP’s four-year average dividend yield is 3.72%, and its current dividend of $0.56 translates to a 3.28% yield on the current price level. Its dividend has grown at a 3.6% CAGR over the past five years.
In terms of forward non-GAAP P/E, RGP is trading at 8.70x, 48.7% lower than the industry average of 16.95x. The stock’s forward EV/Sales multiple of 0.67 is 58.1% lower than the industry average of 1.59. Also, its forward EV/EBITDA multiple of 5.35 compares to the industry average of 10.61.
During the fiscal second quarter (ended November 26, 2022), RGP’s net revenues increased marginally year-over-year to $200.36 million. Its gross profit grew 4.6% from the prior-year quarter to $82.35 million, while its income from operations rose 6.6% from the year-ago value to $5.09 billion.
The company’s net income and adjusted EPS came in at $17.43 million and $0.59, representing a 21.9% and 25.5% increase year-over-year, respectively. In addition, its adjusted EBITDA increased by 18.8% from the same period last year to $29.63 million.
For the fiscal third quarter (ended February 25, 2023), its EPS and revenue estimates are expected to amount to $0.19 and $183.92 million, respectively. Moreover, RGP surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
The stock has lost marginally over the past year to close the last trading session at $17.06.
RGP’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment and Quality. Out of 21 stocks in the Outsourcing - Staffing Services industry, it is ranked first. Click here to see the other ratings of RGP for Growth, Momentum, and Stability.
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AYI shares were trading at $183.44 per share on Monday morning, up $0.71 (+0.39%). Year-to-date, AYI has gained 10.84%, versus a 7.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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