Atlas Copco: Still Excellent, Still Expensive, And Maybe A Bit Vulnerable

There may be better industrial companies out there than Atlas Copco (OTCPK:ATLKY), but the number of entries above them on that list is going to be relatively few. Few companies have matched Atlas when it comes to a margin-rich, asset-light model predicated on driving share growth through both strong engineering and distribution and expansion into adjacent markets, and the valuation typically reflects tat.

Since my last update, Atlas shares have modestly outperformed the broader industrial space (by a couple of percentage points), but have outperformed the S&P 500 by a wider margin. By comparison, other industrials I hold in similar regard like Eaton (ETN) and Honeywell (HON) have done a little better, while Parker-Hannifin (PH) has done a little worse, and Ingersoll Rand (IR), a direct competitor in compressors, has outperformed Atlas more meaningfully (by around 400bp).

I have no issues with Atlas Copco from a long-term perspective, but I do see some challenges in the coming quarters as short-cycle industrial markets slow down and the entire industrial group deals with an uncommon combination of elevated backlogs, high inventories, high costs, and weakening demand. Likewise, the nature of Atlas’s business could lead to relative financial outperformance in FY’23, but underperformance in FY’24. Should the shares sell off during this turbulence, strongly consider adding them.

 

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Atlas Copco: Still Excellent, Still Expensive, And Maybe A Bit Vulnerable