We came across a bullish thesis on Atkore Inc. (ATKR) on Johnson Equity Analysis’ Substack by Kyler Johnson. In this article we will summarize the bulls’ thesis on ATKR. Atkore Inc. (ATKR) share was trading at $86.66 as of Sept 18th.
A worker on a ladder, repairing the electrical power transmission lines.
Atkore presents a compelling investment opportunity, especially for those seeking a company with disciplined capital allocation, strategic acquisitions, and solid financial performance. The company operates in two main segments: Electrical and Safety & Infrastructure. Its electrical segment supplies electrical power systems like conduit and cable through contractors, while the safety and infrastructure division provides solutions for protecting infrastructure, such as metal framing and perimeter security. Atkore’s position as a leading player in these segments, along with its strong market share, allows it to achieve economies of scale in a highly commoditized industry.
The electrical construction supply industry, where Atkore primarily operates, is cyclical and price-driven. The industry’s growth has been steady over the past decade, but it has recently slowed after reaching a peak in 2022. Despite this, Atkore has consistently outperformed industry growth rates, growing revenue at 9% annually over the past 10 years. Its ability to capture market share has been bolstered by strategic acquisitions and operational efficiency. Although growth in the broader industry is expected to decelerate in the coming years, Atkore’s competitive positioning suggests it will continue to perform well, even amid cyclicality.
Atkore’s financial fundamentals are robust, with a free cash flow (FCF) margin of 10.4%, slightly above the industry average. The company has also delivered impressive returns on invested capital (ROIC) at 19.5%, highlighting its capital efficiency. Additionally, Atkore’s management has been focused on shareholder returns, consistently buying back shares while maintaining a strong balance sheet. Its leverage is prudent, with $300 million in cash and manageable debt that extends to 2028 and beyond. This financial discipline, coupled with its ability to maintain a healthy operating cash flow, positions Atkore well for future growth.
Despite recent declines in revenue due to weaker average selling prices in 2023, this downturn is seen as temporary and reflective of cyclical industry trends. Atkore’s management has consistently provided realistic outlooks, and their ability to manage costs and exceed expectations is a positive indicator for future performance. The company’s valuation suggests significant upside potential, with projected revenues of $4.33 billion and $650 million in free cash flow by 2029. Applying a 12x FCF multiple yields a potential share price of $258.20, implying a 170% return over the next five years. This growth trajectory makes Atkore an attractive investment to monitor, particularly during the current slowdown.
Atkore Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held ATKR at the end of the second quarter which was 45 in the previous quarter. While we acknowledge the risk and potential of ATKR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ATKR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.