Atkore is a leading manufacturer of electrical products. There's an excellent post about the company by DWcapital from 2023 which I highly recommend reading. The company's main products are conduits, fittings, framing, and cables. They sell to electrical distributors who in turn sell to contractors and OEMs. They hold the first or second position in terms of net sales in most of their product categories, and while some of their products do have some technical advantages, such as their galvanized process for making rigid steel conduits, their products are mostly pipes and therefore fairly commodized. Atkore's value proposition is in the service they provide to their customers of being a one stop shop with manufacturing facilities spread out across the country. They spent the last decade building up regional manufacturing centers that allow them to ship products to most places in the country within a couple of days, compared to a couple of weeks for the competition. That's a highly valuable proposition for a contractor who would otherwise need to pause construction due to lack of product. It also saves them the need to stock up large inventories at the job site. By carrying many product items that their customers need they also save the contractors the trouble of making multiple orders and dealing with multiple vendors. This allows Atkore to charge a 5-10% premium on their products and retain a very loyal customer base. During covid the company experienced a boom due to increased demand from the construction industry while supply chain disruptions curtailed supply. Atkore, whose entire supply chain is in the US, was able to take advantage of the situation to increase prices. In 2022 revenue was almost $4B, which is 2x the pre-covid level of 2019 and adjusted EBITDA was 4x. The higher prices incentivized more competition to enter the space from abroad and since 2022 the price of PVC and metal conduits, their primary product lines, has come down and as a result sales have suffered, declining almost 30% from their peak to $3.2B in 2024. Due to their operating leverage this has resulted in EBITDA declining by almost half, with management projecting another 50% decline in 2025. The share price followed a similarly volatile trajectory, jumping from a pre-covid level of $40/share to $190 in 2022 and is now trading at $70. And while the trajectory of the past few years has been troublesome to say the least, there are reasons to believe that the worst is already behind us. First of all, the recent PVC and metal framing pricing movements have all the markings of a textbook cobweb effect. When prices shot up during covid and margins expanded, it provided incentives for new competitors from abroad to enter the market. Bringing new capacity online takes time, and as a result we saw new supply coming into the market 2-3 years later around the 2023 timeframe. Now that the market is oversupplied, and margins contracted, we can expect to see supply leave the market. If you believe that it would take a similar timeframe for supply to leave the market as it did to enter it, then we can expect to see a reversal take place in 2025 or 2026. Tariffs should help speed this process along, in particular the removal of the exemption of Canada and Mexico from the 25% tariffs for steel and aluminum products imposed by the previous Trump administration. In fact there are certain clues that this is already happening now as the company was able to raise prices on its steel conduit products this quarter (albeit steel conduit imports were up). Additionally, prices of resin (the raw material used in making PVC pipes) and structured metal have leveled off in the past 6 months. It's worth noting that all of the new supply is imported. None of the local competition added new capacity, and the large size of their products doesn't really lend itself to being outsourced to China. This isn't a small package that you can ship with UPS, but rather truckloads filled with large spools of 16inch diameter conduits. According to management, 8% of their cost is transportation, and if you import from overseas the cost jumps to 30%. As a commodity product with 15% margin the transportation costs of importing the product from abroad eats up your entire margin. According to management's calculation, during normal pricing conditions transporting conduits for more than 500 miles is no longer economical. It only makes sense if a pandemic disrupts global supply chains and raises profit margins upwards of 40%. Since that's no longer the case, management expects overseas supply to exit the market and supply chains to normalize, it's just hard to tell exactly when it will happen. It's also worth noting that even during this disruption to their PVC and metal product lines they haven't lost any business as their customers still prefer working with them. The company in fact even grew its sales volumes, but they had to do so at reduced prices. Aside from PVC and metal conduits which are struggling but seeing the light at the end of the tunnel, the other product areas are already seeing or expect to see rapid growth in the near future. The company's metal framing and cable management product area is seeing mid to high single digit growth rates due to large data center construction activity taking place in the US. The company expanded its offering up the value chain to provide engineering and design services as well as assembly and installation services to its customers. The company also invested heavily in recent years in building up capacity for High Density Polyethylene tubing (HDPE) to make conduits for the communication cables in preparation for the implementation of the Broadband Equity Access and Deployment act (BEAD). The act allocated $40B toward investments in broadband infrastructure and aims to roll out fiber optic backbones across the country. There is uncertainty in this segment, as the wheels of government turn slowly, and recently the government has stipulated diverting some of the funds towards satellite systems such as Starlink. However, since this was a bipartisan bill it's unlikely that we'll see the current administration roll it back and if and when it does come to fruition Atkore is expected to considerably benefit from it. Water conduits are another growth avenue for the company. They had a small footprint in this space and are planning on expanding their offerings. They have both PVC and HDP capacity and customers are asking for a combination of those. The market size is in the $100Bs and is a natural extension of the current business. Yet another product area the company has invested in the recent past is solar torque tubing. This is another growing sector in the economy but this one seems to be more susceptible to government incentives being rolled back. All these new product lines required substantial investments in capex over the recent years and now most of those investments are complete. Management has indicated that future capital expenditures will substantially decline and more cash will be returned to shareholders. And since most of the supply chain and its customers are in the US, far from being harmed by tariffs, the company even stands to gain from them. Despite the strong headwinds the company is facing, it is still highly profitable. In 2024 the company generated $3.2B in net sales, $620 in adjusted EBITDA minus capital expenditures and $400M of free cash flow which was all spent on share repurchases and dividends. For 2025 the company is projecting $2.8B in revenue and $300M in adjusted EBITDA minus capex for 2025 and an estimated $200M in free cash flow. Those are similar amounts to what the company generated in 2019, except it did so then on a $2B revenue. The company has a very healthy balance sheet. It has $770M of debt, which is 1x their 2024 EBITDA level and 2x their depressed 2025 level. None of it matures until 2028 so they have plenty of time to wait out the storm. With a market cap of $2.35B, they are trading at an enterprise value of 10x their adjusted EBITDA, a 5x price to free cash flow ratio based on their 2024 levels and a 10x price to free cash flow based on their depressed 2025 levels. If margins normalize to their pre-covid levels the company's free cash flow can grow by 50%. If you factor in share buybacks at this attractive valuation and a margin expansion to more reasonable levels we can see the stock appreciate significantly in the next few years. If any of the nascent business lines start gaining traction this could further advance the stock price. Lastly, it's worth mentioning that the management appears to be very competent. Prior to covid they took a sleepy business in a low growth industry and transformed it into a national leader. They performed strategic acquisitions at accretive valuations and expanded the business organically into adjacent markets where they could leverage either their product lines, customer relationships or both. Cash flow from operations during the 6 years from their public offering until covid grew almost 7x while shareholders were handsomely rewarded in the process. Cumulatively the company repurchased more than 50% of outstanding shares in the last decade and the stock is now paying a 2.2% dividend. Even if the current competitive conditions in the market continue to deteriorate, there's a good chance that management will be able to navigate it to prosperity. At the current stock price, it seems that all the bad news is already priced in and there's not much more to go down from here. If market conditions merely stay the same and don't deteriorate the company is priced very attractively. Cash being used to repurchase shares at this an attractive valuation is very accretive to shareholders and that by itself can produce a mid double digit returns. In the bright scenario of either excess supply leaving the market or one or more of the other business segments picking up steam we could experience even substantially higher growth rates. And If things do deteriorate further, the company has a strong enough balance sheet to allow management time to adjust course. I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise hold a material investment in the issuer's securities. Catalyst 1. Excess PVC and steel conduit capacity leaving the market as a result of tariffs or due to pricing normalization 2. Government stimulus for AI infrastructure 3. Implementation of the BEADS act