Riverwater Partners: Atkore Inc. ($ATKR) – A Compelling Opportunity in Electrical Infrastructure
In their Q1 2024 investor letter, Riverwater Partners highlighted a new position in Atkore Inc. ($ATKR), a leading manufacturer of electrical, safety, and infrastructure products. Portfolio manager Adam Peck and his team believe $ATKR presents an attractive investment opportunity due to its strong market position, exposure to high-growth end markets, and commitment to shareholder returns.
Riverwater Partners’ investment thesis for Atkore Inc. ($ATKR) centers around several key points:
- Well-positioned in growing end markets
- $ATKR is a key supplier of electrical components for the solar industry, data centers, and EV batteries, all of which are experiencing secular growth.
- The company is poised to benefit from policy initiatives aimed at bringing manufacturing back to the US from China, particularly in the solar industry.
- The increasing energy consumption of data centers, driven by advancements in artificial intelligence (AI), further bolsters ATKR’s prospects.
- Strong execution and financial performance
- $ATKR has demonstrated impressive revenue growth, with a 5-year compounded annual growth rate of 13.9%.
- The company has expanded gross margins by nearly 10% over the same period through product innovation, successful acquisitions, and prudent capital allocation.
- $ATKR recently introduced a quarterly dividend of $0.32/share, which Riverwater Partners expects to grow consistently due to the company’s strong free cash flow and modest debt levels.
- Attractive valuation with potential for multiple expansion
- Despite substantial earnings growth post-COVID, $ATKR trades at a similar valuation to pre-COVID levels and at a discount compared to its peers and the broader market.
- Riverwater Partners anticipates multiple expansion as $ATKR continues to deliver on its growth trajectory.
While some investors may be concerned about the sustainability of ATKR’s demand surge during the COVID pandemic, Riverwater Partners believes this short-sighted view overlooks the company’s broader strategy, strong customer relationships, and continued product demand.
As ATKR continues to execute on its growth plans and return capital to shareholders, Riverwater Partners remains optimistic about the company’s outlook and potential for the stock to re-rate to its peer group.
Click here for the full investor letter.
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