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Atmus Filtration: A Global Industry Leader with Strong Investment Potential
Overview
Atmus Filtration is primed for success following its IPO in May, according to Goldman Sachs. The filtration company is a global industry leader with a competitive edge due to its wide portfolio of more than 27,000 part numbers. As a result, Atmus holds an impressive 30% to 90% of the end market, attracting a broad customer base of automobile manufacturers.
Stock Evaluation
Goldman Sachs analyst Jerry Revich initiated coverage of the filtration company with a buy rating and set a price target of $30, leading to a potential 53.7% increase in stock value. Revich cited Atmus's history of performance, including its impressive 6% long-term compound annual growth rate since 2006 while operating as part of Cummins. Further, as emission regulations increase globally, Atmus will benefit from its highly engineered products.
Expansion Opportunities
However, the company can also expand beyond the core market valued at $15 billion. Atmus has the potential to enter the broader industrial filtration market, valued at $45 billion, through bolt-on acquisitions. Revich believes that the company's already existing internal IP could prove useful in this expansion since the filtration technology is similar in both markets.
Risks
Despite the promising outlook, there are several risks to consider. One of these risks includes the evolving automobile landscape, particularly the shift towards electrification. As Atmus is exposed to combustion engines, Revich suggests the company should focus on merger and acquisition work to mitigate this risk. This is especially important as electrification becomes increasingly prevalent, and the dollar content per unit for electric vehicle parts is expected to decrease.
Bullish Ratings
Goldman Sachs wasn't the only player that rated Atmus positively. JPMorgan, Bank of America, and Wells Fargo all initiated coverage with buy or equivalent ratings. Andrew Obin, an analyst at Bank of America, stated that "In our view, as a standalone company, Atmus will further build on its strengths." As a result, stock prices rose over 7% in Tuesday's session, demonstrating the investment potential of Atmus Filtration.
Atmus Filtration appears to be a strong investment opportunity for those looking to enter the filtration market. With an impressive portfolio of over 27,000 part numbers, the company has established itself as a global industry leader with a competitive edge. The company's focus on highly engineered products and its potential expansion into the broader industrial filtration market through bolt-on acquisitions makes it an even more attractive investment option.
However, risks do exist, particularly due to the evolving automobile landscape, including the shift towards electrification. These risks can be mitigated through targeted merger and acquisition work to adapt to the changes facing the filtration industry.
Overall, the recent bullish ratings from various analysts highlight the potential that Atmus Filtration holds for investors. As the company continues to adapt and expand, it is likely to become an even stronger player in the filtration market, offering a compelling opportunity for new businesses.
