JPMorgan sees a rosy outlook ahead for Atmus Filtration Technologies . The bank upgraded the air filtration company to an overweight rating from neutral. Analyst Tami Zakaria lifted her price target to $60 from $53, implying upside of 25%. Zakaria’s upgrade comes after Atmus announced the proposed acquisition of Koch Filter, an air filter manufacturer, earlier this week. The deal will cost $450 million in cash, and is expected to close in the first quarter of next year. ATMU YTD mountain ATMU YTD chart “Overall, we are tweaking estimates to reflect updated FX estimates (excluding the pending Koch acquisition) and raising our Dec 26 PT to $60 based on ~18x FY1 PE and ~13x FY1 EV/EBITDA,” she said. “This is ~2x below peer DCI’s (not covered) current FY1 EV/EBITDA valuation, which should continue to narrow given ATMU’s potential for topline growth acceleration, ongoing diversification, and an already-better EBITDA margin profile with room for further improvement from efficiency and mix.” As a catalyst, Zakaria pointed to “valuation unlock” that comes from Atmus diversifying its portfolio. “Post the pending Koch acquisition announced earlier this week, commercial vehicle filtration will be ~88% of the revenue mix and industrial air filtration will be ~8% (vs. ~14% industrial air filtration revenue and ~30% of total industrial filtration revenue for peer DCI, not covered). Koch Filter has a shorter replacement cycle (~58% replaced every 3-6 months) than the core ATMU portfolio and 95% of revenues are in the aftermarket,” she wrote. “Koch currently has 8% of revenues tied to data centers, which we believe should grow DD% for the foreseeable future.” Zakaria estimates that the annualized earnings per share accretion potential could be around 17 cents from Koch, assuming that the deal is 70% debt financed. The analyst added that Atmus’ core growth algorithm is also expected to accelerate following this deal. “We believe ATMU’s core revenue growth algo can elevate to HSD% from MSD% over the long run amid ongoing share gains, higher growth algo of Koch/industrial filtration, additional M & A, and potential revenue synergies that are currently not baked into the announced synergy estimates,” she said. Shares of Atmus Filtration have added 23% this year.
