Atkore International (ATKR): A Small Cap Value Stock To Watch In 2017

Who is Atkore International (ATKR)?

Atkore Interenational is a $1.71B Industrial set to report earnings on 2-7 before the open that came public in June of 2016.  ATKR is a leading manufacturer of Electrical Raceway products for the non-residential construction and renovation markets, and Mechanical Products & Solutions for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure’s electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications.

From the 10-Q, “We believe we hold #1 or #2 positions in the United States by net sales in the vast majority of our products. The quality of our products, the strength of our brands and our scale and national presence provide what we believe to be a unique set of competitive advantages that position us for profitable growth.”

Sales, Earnings, & Valuation Metrics

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In 2016 ATKR saw sales -11.9% Y/Y but EBITDA rose +43.3% with EBITDA margins hitting 15.5% compared to 10.6% a year earlier.  The Electrical Raceway segment which includes steel conduits, PVC conduits, armored cables, and cable fittings saw sales +7.4% with higher average selling prices & volume, and saw strong margin expansion.  The Mechanical Products & Solutions segment sales fell 21.9% Y/Y with weak industrial markets, a segment that includes construction design/services, metal framing and fittings, and in-line galvanized mechanical tube.  ATK has brought its Debt/EBITDA ratio down to 1.8X in 2016 from 5.2X in 2014, and has $200M in cash. ATKR could also be a beneficiary of tax reform, having a 36% tax rate last year.

In terms of valuation, ATKR trades 16X Earnings, 1.12X Sales, 12.2X FCF and 8.7X EV/EBITDA for FY17.

ATKR Recent Stock Price Action & Insights:

ATKR shares have rallied from the $15 level last August to hit $27 highs last week, a very strong trend riding the 8 week EMA higher.  Institutional ownership jumped 20.5% in Q3 filings, Levin Capital a buyer of a new 2.265M share position, and one of my favorite funds, Alyeska, is the 4th largest holder.

In closing, ATKR is a new company to me and think it is an attractive value with long term upside.  It is also a margin expansion story with potential for the Industrial-exposed segment to bottom, while also having added upside from tax reform.  Shares have clearly run a long way in the short-term and there will likely be better entry points.  It is clearly levered to the US non-residential construction industry, while rising costs of metals are one likely headwind.  I also feel its strengthening balance sheet opens the door for accretive M&A.  With its leading market share, improving operations and profitability, and leverage to infrastructure spending, ATKR should be a strong performer for years to come.

Thanks for reading and good luck out there!


Twitter: @OptionsHawk

The author does not have a position in mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.