Atmus Filtration Technologies (ATMU) surged 7.3% in Wednesday trading, capturing Wall Street’s attention after a pivotal upgrade from J.P. Morgan signaled that the company is shedding its image as a purely cyclical truck parts supplier.
Analyst Tami Zakaria raised the firm’s rating to Overweight from Neutral and hiked the price target to $60 (up from $53), arguing that the proposed $450 million acquisition of Koch Filter is a transformative event that unlocks high-growth industrial exposure, specifically in the booming data center market.
The upgrade is built on the premise that Atmus is fundamentally altering its growth algorithm. While commercial vehicle filtration remains the core business, the addition of Koch Filter introduces a faster-growing industrial vertical that commands higher valuations.
Zakaria highlighted that 8% of Koch Filter’s current revenue is tied to data centers—a vertical projected to grow by double digits for the foreseeable future as AI infrastructure demands escalate.
Based on conversations with management, J.P. Morgan calculated that Koch Filter has achieved a 10-year compound annual growth rate (CAGR) of approximately 9%, significantly outpacing Atmus’ legacy CAGR of mid-single digits since 2019.
The analyst believes this deal could elevate Atmus’ core organic growth rate to a “high single-digit percentage” over the long run, driven by ongoing share gains, the superior growth profile of the new industrial assets, and potential revenue synergies that have not yet been factored into current estimates.
The Koch Filter acquisition, valued at $450 million, reshapes the company’s revenue mix. Post-close, commercial vehicle filtration will account for roughly 88% of revenue, with industrial air filtration making up the remaining 8%. Importantly, 95% of Koch’s revenue is derived from the aftermarket, which boasts a shorter replacement cycle than Atmus’ traditional heavy-duty truck filters. This shift creates a more frequent, recurring revenue stream that is less susceptible to the boom-and-bust cycles of new truck manufacturing.
The bullish sentiment was further reinforced by the company’s third-quarter performance, which marked the completion of its full operational separation from its former parent, Cummins. In the earnings call, CEO Stephanie Disher described this as a “significant milestone” that frees the company to pursue its own destiny.
“Completing the separation enables us to redeploy resources, time and energy to focus on growth,” Disher said. She also emphasized the cultural transformation underway, dubbed the “Atmus Way,” citing a safety milestone of two years without a serious injury as proof of the organization’s discipline.
Q3 Financials
Despite a challenging global freight environment, Atmus delivered strong financial results for the third quarter:
- Revenue: Sales climbed 10.9% year-over-year to $448 million, driven by a 6% increase in volume and 4% from pricing actions.
- Profitability: Adjusted EBITDA rose to $92 million, expanding margins to 20.4% compared to 19.6% a year prior.
- Cash Flow: Adjusted free cash flow hit $72 million, fueling an accelerated capital return strategy. Ideally positioned to return value, the company repurchased $30 million of stock in the quarter (bringing the total to $81 million since launch) and hiked its quarterly dividend by 10%.
The company’s ability to execute was underscored by its decision to raise full-year 2025 guidance, even as it forecasts U.S. medium and heavy-duty truck markets to be down 20-25%.
- New Revenue Target: $1.72 billion to $1.745 billion (up 3-4.5% year-over-year).
- Profit Outlook: Adjusted EBITDA margin is now expected between 19.5% and 20%, with adjusted EPS forecast at $2.50 to $2.65.
CFO Jack Kienzler noted that the company’s strong liquidity—$618 million in available funds—provides the flexibility to continue aggressive M&A while weathering market volatility.
“We ended the quarter with $218 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $618 million of available liquidity. Our strong liquidity provides us with operational flexibility in the current dynamic market to effectively manage our business and execute on our growth opportunities,” he said.
With a net debt-to-adjusted EBITDA ratio of just 1.0x, the balance sheet remains pristine even as the company gears up for the Koch integration.
Investors are betting that the Koch acquisition is the first step in a broader re-rating of Atmus. By successfully layering a high-growth industrial acquisition on top of a cash-generative legacy business, Atmus is signaling that it intends to be a compounder rather than just a cyclical stock. As J.P. Morgan noted, the combination of share gains, M&A, and exposure to the AI infrastructure build-out provides a clear path to a higher valuation multiple.
