Atkore stock sees downgrade from RBC, facing pricing and margin hurdles

On Wednesday, RBC Capital Markets adjusted its stance on Atkore International Group Inc . (NYSE:ATKR) stock, shifting from an "Outperform" rating to "Sector Perform." The firm also revised its price target for the company's shares, reducing it significantly to $100 from the previous target of $175.

The downgrade is attributed to a series of new challenges that are expected to delay the anticipated positive changes in the company's pricing and margin stabilization.

The analyst from RBC Capital expressed concerns over several emerging negative factors that could potentially hinder Atkore's financial performance in the near term.

These include recent revelations about the "dumping" of Mexican steel conduit, a term used to describe the practice of selling imported goods below market value to undercut domestic producers.

Additionally, the company is facing ongoing weakness and project delays across various sectors, including telecommunications, construction, and utilities.

The guidance reset for Atkore is also causing unease among investors. Forecasts for the fourth fiscal quarter of 2024, as well as the full fiscal years of 2024 and 2025, have been significantly lowered.

The new projections are 45%, 13%, and 35% below the consensus estimates, respectively. This unsettling revision indicates that the company's financial outlook is not as robust as expected.

Despite the downgrade, the RBC Capital analyst noted that Atkore's implied valuation remains attractive. However, there is now a concern that the indefinite timeline for the stabilization of pricing and margins could result in the company's shares becoming "dead money" over the next few quarters. This term refers to an investment that is not expected to see any substantial growth or returns in the foreseeable future.

In other recent news, Atkore International Group Inc. has announced its third-quarter earnings for fiscal year 2024, revealing a mixed financial performance.

Despite facing challenges due to increased competition from imported steel conduits from Mexico, Atkore reported flat organic volume growth and pricing softness in its Electrical business, while its construction services and solar segments performed well. The company also repurchased $125 million in shares and anticipates an EBITDA of approximately $650 million for FY 2025.

Changes in the company's leadership were also announced with CFO David Johnson departing and John Deitzer set to take over the role. Looking ahead, Atkore expects modest volume growth and improvements in EBITDA from growth initiatives in FY 2025. The company's outlook includes expectations for a ramp-up in HDPE volumes through 2025 and 2026 due to program funding.

Despite these developments, Atkore faces challenges in the utility and residential construction markets and expects at least $50 million of incremental EBITDA next year. These are recent developments and investors are expected to closely monitor Atkore's performance in the upcoming fourth-quarter call.

InvestingPro Insights

As Atkore International Group Inc. (NYSE:ATKR) faces a downgrade from RBC Capital Markets, a glance at the InvestingPro platform offers a deeper understanding of the company's financial health and market position. Despite the challenges highlighted by RBC analysts, Atkore is trading at a low earnings multiple, with a P/E ratio of 8.32 and an even more attractive adjusted P/E ratio for the last twelve months as of Q2 2024 at 5.92. This suggests that the company could be undervalued relative to its earnings.

Moreover, InvestingPro Tips indicate that management has been actively buying back shares, demonstrating confidence in the company's value. Additionally, the stock's RSI suggests it is in oversold territory, which could signal a potential rebound opportunity for investors looking for entry points. Notably, Atkore's cash flows can sufficiently cover interest payments, and its liquid assets exceed short-term obligations, providing a cushion against short-term market volatility.

With the stock trading near its 52-week low and having experienced significant price drops over the last three to six months, investors may find the current valuation compelling. For those considering a long-term perspective, it's worth noting that analysts predict the company will be profitable this year and that Atkore has been profitable over the last twelve months. For further analysis and additional InvestingPro Tips, investors can explore the platform's insights, which include 17 more tips for Atkore International Group Inc. at https://www.investing.com/pro/ATKR.

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