Versant’s Lindsell raises target on ATS Automation to $12

The association’s Production Index increased three percentage points from February’s 55.3 percent to 58.3 percent, and its Employment Index increased 2.9 percentage points to 56.1 percent. The ISM said fifteen of the eighteen industries it tracks are experiencing overall growth. Big picture wise, the news is good as the ISM says a PMI better than 42.6 percent “…over a period of time, generally indicates an expansion of the overall economy.”

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Versant Partners analyst Neil Lindsell says this bodes especially well for Cambridge-based manufacturer ATS Automation (TSX:ATA). Lindsell says ATS is finally putting the debacle that was the company’s PhotoWatt solar division experiment behind it, and an improving balance sheet means shareholders can perhaps look forward to some larger strategic acquisitions. In a Research Update Tuesday, Lindsell maintained his BUY rating and raised his target on ATS to $12.00 from $9.00. The Versant analyst says his higher target on ATS comes about because he believes the company deserves a higher P/E multiple. His new multiple of 17, he says, is more inline with comparable companies than his previous metric of 15 times P/E was.

ATS, which was founded in 1978 and employs over 2300 people worldwide, is finally emerging from an ill-timed foray into the solar business. The failure of the Photowatt division meant some disastrous recent numbers. The company lost $18-million in 2011, followed that up with a $5-million loss in Q1 and, finally a $67-million skunking in Q2 of 2012, when it bore the brunt of the PhotoWatt mistake.

In the company’s recently reported Q3, however, ATS seems finally have emerged from the shadow of its solar misstep and be returning to form. The company earned $9.54 million in the quarter, as even through the recent red ink, its core business of designing and building high-precision automation applications, including ultrasonic welding, molding and joining technologies, was growing. In February, CEO Anthony Caputo said he was optimistic that ATS has “….moved beyond the fork in the road on solar separation…”

Lindsell is also encouraged by the company’s growing order backlog. At the end of Q3, he points out, that number was a record of $376 million, up 75% from just last year. These numbers were helped out by the acquisition, in late 2010, of Assembly & Test Worldwide, Inc’s U.S.-based and German automation and test systems businesses, which derived two-thirds of its revenue from the automotive market.

Shares of ATS Automation closed Friday even at $9.40.

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