Acuity Brands, Inc. (AYI): Red Lighting Canaccord Genuity's $172

Acuity Brands, Inc. (NYSE:AYI) is running red despite an upgrade from Canaccord Genuity. Shares are down more than $4 (3%) on a day when the broader indexes are underwater by less than 1%.

Despite underperforming on the day, Jonathan Dorsheimer says the lighting company is a "Buy" with a price target of $172.00 – potential upside of 29.2% to target – not bad.

Acuity Brands designs, produces and distributes lighting solutions, components, and services for commercial, institutional, industrial, infrastructure, and residential applications in North America and internationally.

Dorsheimer tells interested investors, "We are upgrading AYI to BUY from Hold as we believe the 2014 inflection in LED as well as the coming rebound in commercial construction will drive significant top-line growth and leverage for Acuity as the leader in North American lighting."

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The analyst sees a rebound from a soft winter as a driving force behind his opinion, "Acuity's February quarter was below consensus expectations on the weather effects, as we were anticipating; however, we believe that strong year-on-year comps and positive forward-looking commentary overshadowed this softness."

Canaccord has company in forecasting strong growth for the LED lighting market. Digitimes Research "estimates that the production value for high brightness LED chips will have an annual growth rate of 12.9% and reach US$12.74 billion in 2014. The applications that will drive growth momentum are LED lighting, tablet, mobile, and automotive. For the global LED lighting market, the market size will reach US$25.82 billion in 2014 or a market penetration rate of 23.4%."

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Liu Chun-ting, director general for Electronics and Optoelectronics Research Laboratories (EORL) under Taiwan government-sponsored Industrial Technology Research Institute (ITRI) projects a little stronger number, "Global LED lighting market value is estimated at US$30.5 billion for 2014 and will increase to US$51.6 billion in 2018."

Wall Street believes AYI's 2014 revenue will grow a little faster than Digitimes' forecast. The street sees sales of $2.38 billion, an increase of 13.9% from last year's $2.09 billion. The consensus revenue estimate for next year is $2.61 billion.

In the last five years, the lighting tech company's traded with an average price-to-sales (P/S) ratio of 1.35, compared to today's 2.54 times sales, which is a little less than the five-year high of 2.78.

To trade at Dorsheimer's $172, AYI needs to trade at 3 times 2014's revenue outlook and 2.81 times 2015's consensus. At Acuity's half-decade average P/S ratio, the stock prices out at $75.42 and $82.71 using the Wall Street's sales guestimates for '14 and '15, respectively.

Overall: Acuity Brands, Inc. (NYSE:AYI) should benefit from above average growth in the LED lighting market; however, shares could struggle to meet Canaccord Genuity's $172 price target. To do so, would require AYI to expand its P/S ratio.