Currently, two powerful trends in the global economy are increasing Capex, and governments spending more on infrastructure. Today’s growth stock in focus is Atkore (ATKR), which is at the intersection of both of these trends. 

It’s a leading industrial company that 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. Further, the stock remains attractively valued which only increases its upside as multiples will migrate back to normal levels in the coming quarters. 

First, let’s take a look at some of the catalysts that will drive ATKR to new highs.

Catalysts

According to the World Economic Forum, governments all over the world will spend cumulatively $11 trillion in infrastructure spending over the next decade. Of course, the US government is expected to pass a $1 trillion+ infrastructure package in the coming weeks.

These estimates have increased since the coronavirus as governments are eager to stimulate their economy. Additionally, infrastructure spending is an item that all sides of the political divide agree on as being necessary. Finally, the post-pandemic period has also revealed the economy’s fragility in terms of its capacity and supply chain. Investing in infrastructure is the only solution to these challenges.

Just as governments have fallen behind in terms of investing in infrastructure, companies have not spent on capital expenditures. In part, this was a function of the low-demand economy that prevailed over the past decade. Instead, companies were using cash to buy back shares and increase dividends. However, capital expenditures are increasing 15% this year according to The Economist, and are expected to grow at this rate over the next decade as companies build more factories and invest in technology. 

Company Background

ATKR was founded in 1959 and is headquartered in Harvey, Illinois. The company produces and sells a variety of products including electrical conduits and fittings, metal framing and fittings, mechanical pipes, modular support structures, etc. It offers its products under the sub-brands: Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut, Cope, Calpipe brands, etc.

The company has ambitions to become a conglomerate and continues to grow through acquisitions. Earlier this year, ATKR acquired FRE Composites Group, a leading manufacturer of fiberglass conduit solutions for the electrical, transportation, telecommunications, and infrastructure markets. 

Growth Story

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. 

A year and a half ago, analysts were forecasting that ATKR’s 2020 EPS would be around $2.40, and 2021 EPS would be $3.20. However, 2020 EPS ended up being $3.77, and 2021 EPS is expected to come in at $12.45. 

This momentum has continued into its latest earnings report in which the company topped analysts’ expectations for sales, earnings, and margins. Additionally, it increased its guidance. As a result, analysts increased their full-year EPS estimates by 18% and revenue estimates by 10%. 

The interesting development in ATKR’s stock is that the market is treating this earnings and revenue growth as being “transitory”. Analysts are forecasting EPS to decline by 35% in 2022. Thus, the company’s valuation remains quite cheap. However, due to the catalysts mentioned above, I believe that the company’s strong performance will continue, and margins will continue to expand as well. 

Therefore, ATKR’s stock remains attractive from a growth and value perspective despite its recent strength. 

POWR Ratings

ATKR is one of the top-rated stocks according to the POWR Ratings with an overall A rating, which equates to a Strong Buy. The POWR Ratings are calculated by looking at 118 different factors to determine its future upside potential. A-rated stocks have enjoyed an average annual return of +30.72% which is four times better than the S&P 500’s average annual 7.1% gain since 1999.

The POWR Ratings also evaluates stocks by various components to give additional insight. It’s not surprising that it has an A for Growth and a B for Value given revenue growth of over 100% and earnings growth of over 40%. It also has an A for Quality which makes sense as it’s one of the leading suppliers of multiple components that are essential for housing, construction, and industrial projects. Given that these parts of the economy are in expansion mode, ATKR should benefit as well.

Conclusion

The boom in housing, infrastructure, and infrastructure is likely to continue for years to come.  Housing supply remains near record lows at the same time Millennials enter their peak buying years. Demand is also supported by low rates and strong 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.

ATKR is just one of the stocks in my POWR Growth portfolio. That's where I  combine my many years of investing experience with the Top 10 Growth Stocks strategy, which has +46.42% annual returns, to bring investors the best growth stocks for today's market.

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ATKR shares were trading at $87.79 per share on Thursday afternoon, down $2.42 (-2.68%). Year-to-date, ATKR has gained 113.55%, versus a 20.30% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles.

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