ATS Automation is one of our best ideas, GMP says

Following the announcement of a new order from a global pharma company, GMP Securities analyst Justin Keywood has maintained his “Buy” rating on ATS Automation (ATS Automation Stock Quote, Chart, News TSX:ATA).

This morning, ATS announced it had reveived a $32-million order from an unnamed global pharmaceutical company to create an automated assembly and filling line.

“The award of this strategic program is a great win for our business and marks a significant step forward in the ongoing development of our ATS and Comecer joint offerings for the aseptic fill and finish market,” CEO Andrew Hider said. “ATS’ expertise in delivering large, complex systems and Comecer’s specialized technologies and capabilities in the pharmaceutical market were key to securing this exciting program.”

Keywood says he sees this as an unambiguous positive for ATS Automation.

“The win validates the strategic value of the Comecer acquisition in our view, in providing a more rounded offering to healthcare customers for both pharmaceutical and medical device automation. The order also includes ATS Illuminate, which is the after-market sales and services offering with predictive maintenance software and IIOT with assumed higher margins. The contract will be recognized in FQ3 bookings and contribute to sales over two years. The longer duration of the contract points to the evolution of ATS’ business as well, where customers are much less sensitive to potential short-term cyclical headwinds than in the past, especially in healthcare. Overall, we see the win as a positive indication of healthcare activity and see an opportunity for more cross-sales with ATS and Comecer.”

In a research “Flash” update to clients today, Keywood maintained his “Buy” rating and one-year price target of $27.00 on ATS Automation, implying a return of 54 per cent at the time of publication.

The analyst says ATS is currently one of the very best stock ideas in his universe.

“We continue to rate ATS as one of our Best Ideas with a strong secular trend in automation, including above-average growth in the healthcare and EV segments,” he said. “We also believe that there continues to be some misconceptions about the company, including a dated view that ATS’ customer patterns are highly cyclical and subject to quick change. We see this view as recently affecting the stock price to a certain degree, given the larger market volatility. Although ATS is a project business with potential quarter variability on large orders, we note that the company has much greater exposure to valuable areas than in the past. ATS’ customers typically have a 2-5+ year time frame for capital purchases, especially on the healthcare side and are less sensitive to economic changes. We also believe that improvements in ATS’ after-market services offering will further help smooth revenue.

Keywood says it is now all systems go for ATS.

“We expect ATS to continue executing on a value creation plan in a robust automation environment, including improving margins, ROIC, while diversifying the business to higher valued segments through M&A. ATS has a solid balance sheet to support these pursuits with over $650mm in available credit, showing a compelling investment opportunity