Buyback Wednesdays – Atkore Announces a $500 Million Additional Buyback

Buyback activity slowed down further last week with 23 companies announcing buybacks compared to 28 companies in the prior week. Alibaba Group Holding Limited (BABA), CVS Health Corporation (CVS) and NetEase (NTSE) were the top companies that announced huge buybacks in dollar terms, announcing $15 billion, $10 billion, and $5 billion buybacks representing around 7.3%, 8% and 11% of their market caps at announcement respectively.

The stock that grabbed my attention this week is Atkore (ATKR). On November 18, 2022, Atkore upsized its repurchase program from $800 million to $1.3 billion representing around 10.5% of its market cap at announcement. The Board also extended the duration of the program through November 30, 2025.

Atkore provides electrical, safety, and infrastructure solutions. It manufactures electrical power systems, conduit, installation accessories, metal framing, mechanical pipe, armored cable and fittings. The company has been performed well both in terms of revenue and earnings growth the last few years and this is reflected in the 500% gain in the stock the last 5 years.

In terms of repurchases, Atkore has been consistently buying back its shares. Over the last two years the company has retired nearly 8% of its outstanding shares. The stock currently trades at an EV/EBITDA of 3.82 and has a forward P/E of 8.26.  Considering how cheap the stock looks, the additional buyback announced by the company makes sense.

Atkore reported strong Q4 F22 results. In the fourth quarter, net sales increased 11% year-over-year to $1 billion and adjusted EPS increased 26% to $5.52. This is primarily due to higher selling prices and contributions from recent acquisitions. Both sales and earnings have grown significantly since 2017. For the full year, the company achieved $3.9 billion in revenue and its adjusted EPS grew 66% to $21.55. Adjusted EBITDA for the full year was $1.3 billion compared to $880 million last year.

Atkore has grown its earnings and revenue at a CAGR of 74% and 21% respectively over the last 5 years. It has beaten estimates for both earnings and revenues every quarter since June 2020. Two analysts revised their earnings estimates upwards over the last 90 days. Atkore’s gross profit margin of 72.21% and net income margin of 23.34% are at record levels. As of September 30, 2022, the company had cash and cash equivalents of $388.75 million and net debt of $430 million.

Atkore’s growth can be partially attributed to its acquisition spree since 2021. The company deployed $649 million in M&A transactions between FY 2017 and FY 2022 to expand its business globally and enter into new markets. It is good to see that the company did this without taking on an unmanageable amount of debt. Atkore continues to invest in high-growth markets and increase its capacity, as seen by its recent partnership with NEXTracker, a market leader in utility-scale solar trackers. Additionally, ATKR continues to invest in its non-steel products such as High-Density Polyethylene (HDPE) that cater to growing opportunities in the telecommunications and renewable energy market. The HDPE product category represents an approximately $7 billion market opportunity.

                                                                                                                               Source: Atkore Inc. – Investor presentation

Addressing the decline in future earnings, David Johnson, Atkore’s Chief Financial Officer said,

“Even with the projected lower earnings next year, we still expect to generate healthy cash flow in FY 2023 and beyond. We’ve updated our capital deployment framework to reflect that we’ve already achieved the goal we set out last November to deploy [$1 billion] to over two to three years. With that strong cash flow, we will continue to invest in both organic and inorganic growth, as well as continue our share repurchase program. By FY 2025, we expect to achieve greater than $18 per share in adjusted EPS.”

With continued demand for electrical products, broadband and telecom applications, increasing demand for renewable energy infrastructure, and diverse product offerings, Atkore might weather the upcoming macro storms better than most infrastructure focused companies.

Welcome to edition 34 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the largest buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap stocks with a market cap below $2 billion.

Top 5 Stock Buyback Announcements 

1. Allied Esports Entertainment Inc.  (AESE): $1.32

On November 21, 2022, the Board of Directors of this public esports and entertainment company approved a new share repurchase program authorizing the company to repurchase up to $10 million of its class A common stock equal to nearly 19.4% of its market cap at announcement.

Market Cap: $51.59M Avg. Daily Volume (30 days): 63,716 Revenue (TTM): $7.08M
Net Income Margin (TTM): -201.16% ROE (TTM): -21.88%  Net Cash: $84.23M
P/E: N/A Forward P/E: N/A EV/EBITDA (TTM): 2.98

2. Autodesk, Inc. (ADSK): $208.9

On November 22, 2022, the Board of Directors of this design software company approved an additional share repurchase program authorizing the company to repurchase up to $5 billion of its class A common stock, equal to 11.1% of its market cap at announcement.

Market Cap: $44.57B Avg. Daily Volume (30 days): 1,635,398 Revenue (TTM): $4.74B
Net Income Margin (TTM): 11.76% ROE (TTM): 53.97%  Net Debt: $1.47B
P/E: 82.82 Forward P/E: 27.1 EV/EBITDA (TTM): 46.51

3. Gaotu Techedu Inc. (GOTU): $1.08

On November 22, 2022, the Board of Directors of this technology-driven education company  approved a new share repurchase program authorizing the company to repurchase up to $30 million of its class A common stock equal to nearly 11% of its market cap at announcement.

Market Cap: $274.56M Avg. Daily Volume (30 days): 3,343,415 Revenue (TTM): $544.99M
Net Income Margin (TTM): -20.67% ROE (TTM): -22.83%  Net Cash: $477.51M
P/E: 333.70 Forward P/E: 526.32 EV/EBITDA (TTM): -3.74

4. NetEase, Inc.(NTES): $65.5

On November 17, 2022, the Board of Directors of this Chinese gaming company approved a new share repurchase program authorizing the company to repurchase up to $5 billion of its class A common stock, representing nearly 10.85% of its market cap at announcement.

Market Cap: $41.11B Avg. Daily Volume (30 days): 2,552,825 Revenue (TTM): $13.43B
Net Income Margin (TTM): 23.12%% ROE (TTM): 20.45%  Net Cash: $12.26B
P/E: 17.88 Forward P/E: 13.39 EV/EBITDA (TTM): 9.22

5. Atkore Inc. (ATKR): $121.66

On November 18, 2022, the Board of Directors of this manufacturer and seller of electrical, safety, and infrastructure products approved an additional share repurchase program authorizing the company to repurchase up to $500 million of its class A common stock equal to nearly 10.5% of its market cap at the announcement.

Market Cap: $4.65B Avg. Daily Volume (30 days): 541,441 Revenue (TTM): $3.91B
Net Income Margin (TTM): 23.34% ROE (TTM): 86.4%  Net Debt: $443.55M
P/E: 6.06 Forward P/E: 8.4 EV/EBITDA (TTM): 3.85

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