An LED Lighting Investment Opportunity

David Fessler By David Fessler
Energy and Infrastructure Strategist

Alternative Energy

Three years ago, LED lighting finally got cheap enough to adopt. At least by my standards.

I swapped out every lightbulb in all the buildings on our Pennsylvania farm. It cost me just over $2,000 to do it.

Sounds like a lot, I know. But it was worth it.

My family and I are enjoying average annual savings of $840 on our electric bill. We still can’t believe how much we save every month.

The demand for LED lighting is rapidly increasing. So much so that I’d say the LED tipping point has arrived.

Let There Be (LED) Light

High-volume manufacturing is underway (some of it is even here in the U.S.). And prices are dropping through the floor.

On average, commercial LED lighting retrofits save owners 60% or more versus conventional lighting.

There are still some skeptics out there. Some believe investing in LEDs is a limited profit opportunity, at best.

The thinking behind this is that given how long LEDs can last (up to 25,000 hours), the replacement business is virtually nonexistent. At least for 10 years or so.

But here’s the key: The conversion opportunity for older incandescent, fluorescent and other low-efficiency lighting is still $500 billion.

Plus, there are other benefits to LED lighting, especially in commercial and industrial applications. LEDs are, on average, six times brighter than older forms of lighting.

Last year, Washington, D.C., decided to spend $50 million to convert all of its Metro subway stations to LED lighting.

So far, 15 stations have made the switch, with the remaining ones not far behind. This lighting change also correlates with the lowest Metro crime rate in 19 years.

Additionally, highway authorities are embracing LEDs in a big way by upgrading freeway lighting.

Prior to switching to LEDs, Detroit saw only 70% of its highway lighting working. Now 99% of it works.

Lighting the Way

As an investor, you have several choices when it comes to profiting from the LED lighting wave. But one company stands above the rest.

I’m talking about Acuity Brands (NYSE: AYI). It has one of the largest portfolios of lighting brands in the world.

Sales have grown from $2.4 billion in 2014 to $3.7 billion last year. It has 19 manufacturing locations and 13,000 employees.

Ninety-seven percent of its business comes from North American customers. Eighty-five percent of its business is nonresidential, and 50% is new construction.

With more than 2 million SKUs, Acuity has a lighting solution for just about any application.

In addition to individual bulbs, Acuity sells integrated lighting solutions and entire building energy systems. Future platform services include software analytics focused on energy efficiency.

Acuity Brands is quietly disrupting the lighting sector. And I believe it will reward shareholders in the process.

Good investing,

Dave

P.S. As a reminder, Energy & Resources Digest is getting a makeover. We’re updating our brand to better reflect who we are and what we cover. So starting sometime next month, you will see a new design and a name change from Energy & Resources Digest to Profit Trends. Stay tuned for more details!