Imagine a world where the store shelves light up automatically when you walk down the aisle. A world where the office air is circulated more briskly when a sensor notices you nodding off mid-meeting. A place where your city is notified immediately when a streetlamp is out. And that the technology allowing for all this magic lowers power consumption by 66%, making it both cost-efficient and tremendously practical?

This world already exists and much of the technology that powers it comes from Acuity Brands (NYSE: AYI). This leading provider of intelligent lighting and heating is a pure play on the explosive demand for such products in commercial, educational and industrial buildings. The acquisitions of Juno Lighting and Distech in Acuity’s 2016 fiscal year, which ended in August, expanded Acuity’s network capabilities and extended its expertise into heating.

This stock was our secret pick from the Wealth Society conference in May. Although its $12 billion market cap is significantly larger than most of our small and mid-cap holdings, Acuity’s growth prospects are too hard to ignore.

Our target is $342 based on earnings per share of $10 in 2017.

In the Dark

Acuity has been able to prosper partly due to the adoption of LED lighting. LEDs are light-emitting diodes, tiny semiconductors that emit light when activated. Because LEDs are based on semiconductor technology, their efficiency improves exponentially while costs fall.

Goldman Sachs this month named LED technology the top market disruptor in green technology for the coming year. LEDs last ten times longer than traditional incandescent bulbs, are more durable and don’t heat up like old-fashioned bulbs, making them a clear choice for smart grid and commercial applications. Goldman Sachs predicts that LEDs, which accounted for almost none of the lighting market in 2010, will make up almost 70% of lighting fixtures in 2020 and 95% by 2025.

Acuity, which does not produce LEDs but rather integrates LED technology into sophisticated lighting and heating products, has taken off while LED manufacturers struggled. The adoption of LED technology has been swift, but the path for manufacturers hasn’t been easy. The process for making this core component became commoditized quickly and caught manufacturers off guard.

As production boomed, LED prices plummeted more than 90%. An LED bulb that cost $25 in 2013 can now be bought for $2.50. Hundreds of Asian manufacturers have gone bankrupt, and domestic leader Cree has struggled to turn a profit. Although suppliers have thinned out, the lower prices are encouraging Acuity’s customers to jump on board with LED systems.

Brighter and Better

Acuity realized that a better model was to take those super-cheap and efficient LEDs and build lighting systems for them. The company, which was spun out of National Service Industries in November 2001, has never strayed far from its roots as a supplier of premium lighting fixtures and systems for new construction and renovations.

The company has the rare designation of having earned a profit in every year since going public, as well as increasing revenue in every one of those years except for a stumble in 2006 and during the Great Recession in 2009 and 2010. Revenue has grown 22% year-to-date and jumped 25% in the most recent quarter. Earnings catapulted 36% in 2015 and are expected to grow another 45% this year. Estimates pencil in a deceleration to 20% growth in 2017, a rate we think is too low based on the company’s recent acquisitions and strong economic trends.

Smart Buildings

Acuity is an adept acquirer, supplementing its high-teens-percentage growth with growth from new products and systems brought in via acquisitions. Those acquired products and capabilities should continue to crowd out the competition, which cannot offer the kind of one-stop shop that Acuity does.

Much of Acuity’s expertise lies in the software it develops to automate lighting and heating systems. One of its most successful applications has been its work with Target to automate lighting for the retailer’s stores based on motion sensors. Not only does Target cut its lighting bills significantly by migrating to LEDs, but now uses less power when an aisle is empty. Better still, these sensor beacons also monitor customer traffic in stores. Target will roll out Acuity’s technology to the rest of its stores by year-end and will quadruple the number of beacon sensors purchased from Acuity during that expansion. Target has made Acuity its exclusive lighting provider.

Not Cyclical

While we personally think commercial construction numbers look solid, Acuity isn’t overly dependent on these highly cyclical trends. A little over half of Acuity’s revenue currently comes from remodels, and management is quick to note that the potential market for converting current lighting systems in existing buildings is worth $300 billion.

The combination of low LED prices and dramatically lower power use make switching to Acuity lighting systems an economic no-brainer. The ability to use LEDs as a backbone to connect heating, lighting and security systems means adopting smart LED systems has become a top priority for many commercial, educational and institutional buildings.

An agreement with Silver Spring Networks, a publicly traded provider of municipal lighting systems, gives Acuity exposure into developing smart cities where smart LED systems replace traditional street lighting and traffic signals.

Emitting Cash

Acuity has spent $614 million on its two recent acquisitions, an investment primarily funded by cash flow. In the first nine months of this year, the company generated $244 million in operating cash flow, up 54% from last year’s $158 million.

The company pays an annual 52-cent dividend, which equals a measly 0.2% yield due to the high share price but offers a bit of income nonetheless. We expect Acuity to continue to light up investors’ portfolios with explosive earnings growth.

Target: $342