After recently it spun off from Cummins (NYSE:CMI), Atmus Filtration Technologies (NYSE:ATMU) has exceeded expectations with recent top and bottom-line beats. With solid cash flows and limited debt to its advantage, it has become a leading force in the filtration industry, driving the stock up roughly 25% year-to-date. Despite this, the market appears to have factored in minimal upside, and the stock currently trades at a discount to its industry peers, making it a solid option for value-oriented investors in industrial goods.
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Atmus Filtration’s Successful Spin-off
Atmus Filtration is a global leader in filtration and media solutions. It plays a vital role in the filtration industry with operations across six continents. The company’s expertise lies in designing, manufacturing, and distributing innovative filtration systems for a diverse sectors, including truck, bus, agriculture, construction, mining, marine, and power generation vehicle and equipment markets.
The company recently spun off from Cummins and has locked up distribution to Cummins vehicle platforms. However, independence has allowed the company to accelerate growth with other leading global Original Equipment Manufacturer (OEMs) that were out of reach when it was part of Cummins. Most recently, Atmus have won the global OEM’s fuel filtration business for their European and North American dealings.
Atmus recently introduced distribution centers in Dallas, Texas, and Singapore, and plans to establish more such facilities in Europe throughout 2024. The company is also purchasing and investing in manufacturing automation, which aims to reduce operating costs further. As evidence of successful implementation, the company’s adjusted EBITDA margin expanded by 300 basis points in 2023.
Atmus’ Recent Financial Results & Outlook
The company reported Q1 2024 financials that exceeded analysts’ expectations. Reported revenue of $426.60 million outperformed the consensus estimates of $416.24 million. Net income of $46 million drove diluted earnings per share (EPS) of $0.60, surpassing estimates of $0.55.
However, the company did see a decrease in its cash flow from operating activities with $8 million compare to the $43 million cash provided by operating activities in Q1 of 2023. This higher cash usage is attributed to increased working capital requirements and the payment of incentive compensation for the strong performance in 2023.
For 2024, management has maintained its guidance with projected revenues ranging from $1.610 billion to $1.675 billion and an adjusted EBITDA margin of 18.25% to 19.25%.
What Is the Price Target for ATMU Stock?
Analysts following the company have been bullish on the stock. For instance, JPMorgan analyst Tami Zakaria, a five-star analyst according to Tipranks rantings, recently raised the price target on the shares from $36 to $38 while maintaining an Overweight rating, noting positive recent results, raised estimates, and resilient demand.
Atmus Filtration Technologies is rated a Strong Buy overall, based on the recommendations and price targets issued over the past three months by five analysts. The average price target for ATMU stock is $36.00, representing a potential upside of 25.65% from current levels.
The stock has been upward trending, climbing over 44.5% in the past year. Shares trade in the upper half of the 52-week price range of $18.21 and $33.70, though it looks to be relatively undervalued. The P/E ratio of 14.98x sits significantly below the Pollution & Treatment Controls industry average of 23.58x.
Concluding Thoughts on ATMU
Atmus Filtration has been a strong performer in the filtration industry, successfully extending its reach beyond Cummins, accelerating its growth, and expanding its customer base. Despite a year-to-date stock surge, shares are still relatively undervalued, making it a viable choice for value-focused investors eyeing the industrial goods sector.
