Atkore Inc. (“ATKR”) – The Investor Weekly Stock Report
Atkore Inc. remains a deeply moated business, with competitive positioning across most business lines. Supply constraints from the pandemic have hampered their competitors and led to huge increases in pricing.
Margins are high and earnings are at windfall levels in 2021. And we believe that they are going higher in 2022E.
Despite the runup in stock price, ATKR remains undervalued in both the short- and long-term.
The stock trades at only 10x 2022E levels. ATKR’s ability to generate cash and reinvest it back into the business at high rates of return make the Company a long-term winner.
Organic growth and inorganic initiatives have moved 5-year EBITDA up >15% per year through 2022E. Additionally, EBITDA per share has grown more than 4 times over the past seven years.
On top of that, the Company continues to buy-back shares further driving shareholder returns. Management continues to reduce leverage such that it sits at 1x times 2022E EBITDA. The balance sheet is strong with long-term debt at low rates.
We believe that ATKR will deliver market-beating results over the next five years.
Return vs S&P from 2016 to 2021
Financial Overview: August 20201 Market Cap: $4.18 billion
Total Debt: $818.82 million
Cash: $397.14 million
EV: $4.61 billion
ATKR is up 120% year-to-date. The Company is down 4.0% over the past month.
ATKR has grown its EPS by 40% over the past three years.
Strong History of Earnings Beats
Atkore Inc. Overview
ATKR was founded in 1959 and is headquartered in Harvey, Illinois.
ATKR is a manufacturer of metal conduits, PVC, armored cable, and related products across the United States and Europe. It offers its products under the sub-brands: Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut, Cope, Calpipe brands, etc.
It was spun out of Tyco in 2010 and acquired by CBR. Under CBR’s management, ATKR divested less profitable and underperforming segments. Other segments, such as PVC, were consolidated to create scale, improve operating margins, and build a more competitive position.
The Company later became a publicly traded company in 2016.
ATKR was a successful company as it rolled up smaller companies and became the number 1 or 2 supplier in a variety of categories. However, its business has exploded over the past year with a rebound in industrial activity and the housing market.
The company has ambitions to become a conglomerate and continues to grow through acquisitions. In early 2021, ATKR acquired FRE Composites Group, a leading manufacturer of fiberglass conduit solutions for the electrical, transportation, telecommunications, and infrastructure markets.
Bill Waltz, CEO
Waltz has been president since 2011. He has served as the President and Chief Executive Officer of Atkore. Prior to that, he served in several other Company executive roles, including Chief Operating Officer and Group President of its electrical business.
The Company operates in oligopoly markets, with at most two large competitors in each segment. ATKR is a top player in each segment and this explains ATKR’s persistently high margins. It has two powerful catalysts due to increasing infrastructure spending and a CAPEX boom.
The Company is the dominant supplier of a variety of products used in construction and infrastructure projects. This gives it pricing power in addition to increasing revenues which is translating into explosive earnings growth.
The boom in housing, infrastructure is likely to continue. Demand is supported by low borrowing rates and household savings. There’s a similar story with infrastructure and Capex. There’s been under-investment in these areas, and governments and companies are looking to ramp up spending in these areas over the next decade.
Due to these trends, ATKR’s earnings are more likely to increase in 2022, rather than decline, which means the stock is a fantastic opportunity to own at current levels.
Atkore Inc. Competitors
Other Peers that we like are Builder FirstSource (BLDR), Top Build (BLD) and Trex (TREX).
ATKR reported Q3 2021 results on August 03, 2021. The Company reported solid volume growth across the business. Q3 Non-GAAP EPS of $3.96 beats by $0.89; GAAP EPS of $3.64 beats by $0.80.
Revenue of $853.7M (+121.8% Y/Y) beats by $126.29M. For the year, the Company expects net sales to be up ~60% vs. estimate of 46.80%, and Adjusted EBITDA to be in the range of $855 to $875 million. In addition, the Company expects adjusted net income per diluted share to be in the range of $12.25 – $12.55 vs. consensus of $10.50.
The Company repurchased $75 million in stock in the third quarter.
ATKR completed debt refinancing and extended the asset-based loan credit facility. The new TLB was extended 4.4 years and the spread was reduced by L + 75 basis points. The Company also introduced senior unsecured notes with a 10-year tenor due 2031 at 4.25%. The total blended cost of debt was reduced from 3.75% to 3.375%.
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FY 2021 Free Cash Flow Bridge
Profitability Metrics and Valuation
Management has guided to a midpoint of $750 million EBITDA for fiscal year 2021, more than double the $327 million reported in 2020. It reflects a 44% five-year compound earnings growth rate. Analysts expect profit to surge 229% for the current fiscal year ending in September to $12.44 a share. Over the last three quarters, Atkore has delivered average earnings growth of 258%.
The Company has made projections about 2022E, when supply chain constraints are likely to abate. Midpoint guidance translates to $6.50 a share for earnings at 1.4x leverage. P/E would be about 10 times earnings.
The Investor Weekly believes that this business is capable of a 20 to 25 multiple. At $6.50 per share in 2022E earnings, a 15 to 25 multiple translates to a stock price of $97.50 to $162.50.
An interesting development in ATKR’s stock trajectory is that the market is treating this earnings and revenue growth as being “transitory”. Analysts are forecasting EPS to decline by up to 35% in 2022E. Therefore, the company’s valuation remains discounted. However, due to the catalysts mentioned above, we believe that the Company’s strong performance will continue, with margins stabilizing at already high levels.
In conclusion, ATKR’s stock remains attractive from a growth and value perspective, despite its recent strength.
ATKR is back in a buy range. Products made by ATKR are used in commercial construction projects worldwide. That puts it among top stocks to watch as a prime infrastructure play, as the U.S. and rest of the world try to recover from the coronavirus pandemic.
In early August, ATKR reported triple-digit gains in fiscal Q2 adjusted earnings and revenue as profit soared 491% and sales popped 122%. It also raised its full-year adjusted EBITDA forecast to $855 million-$875 million and its adjusted net income per share outlook to $12.25-$12.55. The relative strength line, which compares a stock’s performance to the S&P 500, is just off record highs and is turning slightly higher.
For more stock-specific articles, check out our Buy List, showcasing some of the top-performing companies in the markets!
ATKR stock cleared a $90.18 buy point on Aug. 10 in heavy trade. It extended its gains and hit a high of 98 before easing back below the entry. The stock has since broken out again and sits in a potential buy range up to $94.69. ATKR has struggled to rally from the buy point, but could set up an alternate entry near $98 if the stock engages in more sideways action The base is second stage, which means there could be plenty of room to run. Stocks tend to make their biggest advances out of such early-stage bases. The stock has rallied more than 100% this year. And that’s on top of a 279% rally from its March 2020 coronavirus crash lows to its Dec. 31 close. From the March 2020 low to its May 10 high, Atkore surged 730%.
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The Investor Weekly is long Atkore Inc (“ATKR”) either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions, I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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