ATS Automation is in good shape, Stifel says

The market may not have liked the latest quarterly results from ATS Automation (ATS Automation Stock Quote, Chart, News TSX:ATA) but Stifel GMP analyst Justin Keywood is still keen on the stock.

In an update to clients on Wednesday, Keywood reasserted his “Buy” rating and $28.00 target price, saying ATS is well-positioned for COVID-19 and beyond.

Cambridge, Ontario’s ATS Automation Tooling Systems reported fiscal fourth quarter 2020 earnings on Wednesday, featuring revenue up ten per cent year-over-year to $382.1 million, two per cent of which was organic growth and eight per cent was from acquired businesses. The company reported earnings from operations of $24.9 million, down from $30.3 million a year ago.

For the 2020 year, ATS saw revenue jump 14 per cent while earnings fell from $0.76 per share to $0.57 per share.

In the quarterly commentary, management said COVID-19 will take a bite out of the company’s revenue and operating margins going into fiscal 2021.

“We have a strong business with good order backlog, a healthy balance sheet and valued customer relationships with world-leading organizations many of whom themselves are essential service providers,” said CEO Andrew Hider, in a press release.

“Over the long-term, when we do move beyond this crisis, our business is uniquely positioned to provide value to our customers as they innovate, drive efficiency and examine the need for supply chain refinements within their operations,” he said.

Looking at the quarter, Keywood said the $382-million top line was well above both the Street’s forecast of $330 million and his $384-million estimate, while adjusted EBITDA (by Keywood’s estimation) of $43.8 million was also above his $38-million estimate and the consensus $35 million.

But the analyst deemed the results just “okay,” saying while bookings were also solidly up 19 per cent year-over-year to $356 million, cash flow from operations was down to $10 million versus $26 million a year ago. As well, the caution expressed by management about the year ahead was notable, Keywood said.

The analyst argued that ATS should benefit from the on-shoring trend in businesses which will seek out ATS for manufacturing support.

“We remain bullish on ATS’ healthcare segment, which has a rapidly developing new area related to test kit automation for COVID-19 and is a global opportunity as a non-shoring trend progresses in the background,” Keywood wrote.

“Although ATS was conservative on the call, we see healthcare as supporting the business in the near term, evidenced by the $65-million contract in Q1. ATS is also expected to be acquisitive with a potential focus in the healthcare segment that we see as a valuable pursuit. ATS recently drew down $250 million of a credit facility that could be used for M&A. Our conviction in ATS remains high,” Keywood wrote.

The analyst is calling for fiscal 2021 revenue and EBITDA of $1.466 billion and $192.4 million, respectively. At the time of publication, Keywood’s $28.00 target price represented a projected 12-month return of 30 per cent.