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Bull of the Day

When I think of the top three most exciting industries a company could be in, lighting fixture manufacturing does not come to mind. However, if you look at our Zacks Industry Rank you will see this business is the top industry of the 265 we rank. Granted there are only 2 stocks in the space but nonetheless it is surprising.

Acuity Brands (AYI) is the world’s largest lighting fixture manufacturer and pegs our meter as a Zacks Rank #1 (Strong Buy). I am not an expert on the lighting fixture business but I know good numbers when I see them. In the last 60 days, 10 analysts have revised their earnings estimates to the upside for the current year and next year. The magnitude of the consensus move is very encouraging with current year estimates up from $4.17 from $3.87 a share and next year to $5.07 from $4.70. Over the last 3 quarters the company has surprised earnings to the upside and the stock has followed suit as well.  

The price and consensus chart helps outline the earnings revisions along with stock price over the last few years. Here we see steady earnings growth year over year and recently the upwards revisions I already spoke of. Note how the growth in earnings has been accompanied by continued appreciation in the stock price.

The technical picture is what makes this stock a certified Bull of the Day. The stampede started a long time ago and there is no sign of letting up yet. Last quarter’s earnings report, surprising to the upside by 12.94%, was a major catalyst, pushing the firmly through $110 into the stratosphere at $135. After pulling back to $125 the stock is pushing higher again and currently trades at $140. The 25 day SMA displaced to the right by days (25x5 SMA) is down at $129.49 and gives us a good area for a stop loss shortly below. It will be interesting to see how far the breakout of $135 can go before a serious pullback. The stock has traded for the most part above the 25x5 since July 2012.  

Those trying to chase this breakout should remember a couple of basics. First, set an initial stop loss within 8% of your entry. As an example, a buy at $140 should have a stop loss at $128.80. In the case of AYI we have the 25x5 SMA as support at $129.49 so we could put the stop up here and further limit our initial downside risk. Second, once the breakout moves in your favor by 8%, $151.20 in our example, then move your stop loss to break-even. This way you are playing with the house’s money and let a volatile stock take its course.

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