The current market sell-off due to the rising inflation and tightening monetary conditions has led some quality stocks to trade at a discount to their peers. Thus, we think cheap stocks EMCOR Group (EME), Korn Ferry (KFY), and Acuity Brands (AYI) could be valuable investments now. These stocks are rated ‘Strong-buy’ in our proprietary rating system.
The market has witnessed an extended sell-off so far in 2022 due to aggressive interest rate hikes to combat rising inflation and more economic slowdown. The sharp sell-off yesterday took the year-to-date losses of the S&P 500 index to 13.6% and those of the Dow Jones Industrial Average and the Nasdaq Composite index to 9.4% and 22.7%, respectively.
However, the bearish market provides investors with a golden opportunity because many quality stocks are now trading at attractive valuations. Fundamentally-sound companies with solid growth prospects could generate significant returns in the near term.
Given this backdrop, we think stocks of EMCOR Group, Inc. (EME), Korn Ferry (KFY), and Acuity Brands, Inc. (AYI), which are currently trading at discounts to their peers, could be ideal investments. These stocks have an overall rating of A, which translates to ‘Strong Buy’ in our property POWR Ratings system.
EMCOR Group, Inc. (EME)
EME is one of the top providers of building, infrastructure, construction, and industrial services for all sorts of different businesses in sectors ranging from utilities to industrial and commercial. It operates through five segments: electrical construction and facilities services; mechanical construction and facilities services; building services; industrial services and United Kingdom building services.
During the first quarter ended March 31, 2022, EME’s revenue increased 12.5% year-over-year to $2.59 billion. Its gross profit rose 3.4% from the year-ago value to $352.56 million.
EME is relatively undervalued compared to its peers. The stock’s forward Price/Sales multiple of 0.52 is 62.1% lower than the industry average of 1.36. In addition, its forward EV/EBITDA ratio of 8.50 is 20.4% lower than the industry average of 10.68.
The consensus EPS estimate of $2.16 for the fiscal third quarter (ending September 2022) represents a 16.9% improvement year-over-year. The consensus revenue estimate of $2.68 billion for the next quarter indicates a 6.4% increase from the same period last year. The company has an impressive surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained marginally to close its last trading session at $107.52.
EME’s POWR Ratings reflects this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
EME has a B grade for Value, Stability, Sentiment, and Quality. Within the Industrial – Services industry, it is ranked #4 of 87 stocks. To see additional POWR Ratings for Growth and Momentum for EME, click here.
Korn Ferry (KFY)
KFY is a global organizational consulting firm. It provides executive search services to fill executive-level positions for clients in various sectors. The company operates through four segments: Consulting; Digital; Executive Search; and RPO (Recruitment Process Outsourcing) & Professional Search.
On May 11, KFY was named as a Leader in Recruitment Process Outsourcing (RPO) in Everest Group’s PEAK Matrix for the fifth consecutive year. This recognition showcases the company’s strong advisory offerings and most advanced technology portfolios among its competitors.
On April 1, the company acquired Patina Solutions Group, Inc. to accelerate the scale and capabilities of its current interim executive solutions business. Analysts expect this acquisition to be accretive to KFY’s adjusted earnings.
In the fiscal third quarter (ended January 31, 2022), KFY’s total revenue increased 43.3% year-over-year to $684.96 million. Its operating income increased 93.7% from the year-ago value to $126.29 million, while its net income attributable grew 63.9% year-over-year to $84.10 million. The company’s EPS came in at $1.54, representing a 63.8% year-over-year improvement.
KFY is relatively undervalued compared to its peers. In terms of forward non-GAAP P/E, KFY is currently trading at 10.04x, 40.1% lower than the industry average of 16.76x. Its forward EV/Sales multiple of 1.17 is 29.4% lower than the industry average of 1.66x.
The consensus revenue estimate of $680.04 million for the fiscal fourth quarter (ended April 2022) represents a 22.5% increase from the same period last year. In addition, Street expects the company’s EPS to increase 28.3% to $1.55 for the same quarter. KFY surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent. Shares of KFY rose marginally over the past three months to close the last trading session at $61.29.
It is no surprise that KFY has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It also has a B grade for Value, Sentiment, and Quality. The stock is ranked #5 of 18 in the Outsourcing – Staffing Services industry. Click here to see the other ratings of KFY for Growth, Momentum, and Stability.
Acuity Brands, Inc. (AYI)
AYI focuses on developing, manufacturing, and marketing products and services, including building management systems, lighting, lighting controls, and location-aware applications. The Company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).
On February 3, AYI introduced a new sustainability initiative, using technology to eliminate waste. The introduction of digital QR code installation instructions is expected to reduce the company’s CO2 emissions by approximately 423,000 pounds per year. This digital transformation is expected to save an estimated 15 million sheets of paper and an estimated 1,500 trees per year, which aligns perfectly with the company’s sustainability goals.
On January 12, the company partnered with Microsoft Corp. (MSFT) to enable sustainable building automation solutions. Integrating MSFT Azure IoT and AI with AYI solutions helps both companies reduce carbon emissions and meet their climate goals.
AYI’s net sales increased 17.1% year-over-year to $909.10 million in the fourth quarter ended February 28, 2022. The company’s net income increased 19.7% from the year-ago value to $75.30 million, while its operating profit grew 12.4% year- over-year to $102.30 million. The company’s EPS rose 22.4% from the prior-year quarter to $2.13.
AYI is trading at a discount to its peers. The stock’s forward non-GAAP P/E multiple of 15.21 is 9.3% lower than the industry average of 16.76. In addition, AYI’s forward EV/EBIT and EV/EBITDA ratios of 11.60 and 10.26 are significantly lower than the industry averages of 14.89 and 10.68, respectively.
Analysts expect AYI’s EPS and revenue to increase 4.3% and 9% year-over-year to $2.89 and $980.84 million, respectively, in the third fiscal quarter (ended May 2022). The stock has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive. AYI has gained 7.6% over the past month.
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 POWR Ratings system. AYI also has an A grade for Quality and a B for Value. Among the 63 stocks in the Home Improvement & Goods industry, it is ranked #1. Click here to see the additional POWR Ratings for AYI (Growth, Momentum, Stability, and Sentiment).
EME shares were unchanged in premarket trading Friday. Year-to-date, EME has declined -16.04%, versus a -15.22% 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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