ATS Automation (ATS Automation Stock Quote, Chart, News, Analysts, Financials TSX:ATA) has been on a roll for the better part of a year, but Stifel analyst Justin Keywood believes there’s more where that came from. In an update to clients on September 9, Keywood maintained his “Buy” rating while raising his target price to $54.50/share from $51.50/share for a projected return of 19.4 per cent.
Cambridge, Ontario-headquartered ATS Automation is a custom automation and integration solutions and services company for businesses in a range of markets including life sciences, food and beverage, transportation, consumer products and energy. ATS has over 5,000 employees worldwide with 28 facilities across 20 countries and a current market cap of $4.2 billion.
Keywood’s latest analysis comes after ATS announced its fourth acquisition of the year, investing US$40 million to acquire NCC Automated Systems, with the financing coming through ATS’ credit facility.
“We also see the deal as highlighting ATS’ balance sheet strength with $216 million in cash (CQ2/21) and over $600 million in available capacity to deploy, while maintaining conservative debt ratios,” Keywood said. “ATS’ net debt/EBITDA ratio is 1.6x with a comfort range of 2.0-2.5x and up to 3-4x in the short term on M&A.”
Founded in 1986 and based in Souderton, Pennsylvania, NCC provides turnkey automation solutions under the NCC and Nutra-Pack brands and manufactures pallet handling and sanitary conveyance products through its Glide-LineTM and SideDrive brands, with customers in the food and packaging, ophthalmic, assembly automation and nutraceutical markets.
“The acquisition of NCC expands our portfolio of precision conveyor technologies through the addition of adjacent and complementary products to ATS’ SuperTrak, addressing an important pillar of ATS’ automation products strategy while enhancing our position in the food and beverage end-market,” said Andrew Hider, CEO of ATS in the company’s September 1 release announcing the acquisition. “NCC’s strong design software toolkit also allows us to play a more holistic role in supporting the needs of our customers from the design phase through to implementation by bridging the connection between the design engineer and manufacturing operator.”
ATS has been busy on the acquisition front throughout the year, as NCC joins the previously announced acquisitions of Irvine, Calif.-based fluid dispensing system manufacturer BioDot Inc. in April, Dublin, Ireland-based system integrator Control and Information Management, Inc. in June, and the August acquisition of BLSG AG, a German consulting company specializing in process engineering.
The company also reported its first quarter financial results for the 2022 fiscal year in August, headlined by $510.6 million in revenue for a year-over-year increase of 57.2 per cent, with adjusted EBITDA nearly doubling to $77.9 million with a 15.3 per cent margin compared to $$39.2 million and a 12.1 per cent margin in the same quarter last year.
Keywood’s financial metrics and projections also show ATS continuing to move in the right direction, as he projects 2022 revenue to reach $2.01 billion for a projected year-over-year increase of 40.6 per cent, with another projected jump to $2.17 billion (eight per cent year-over-year increase) in play for the 2023 fiscal year.
Keywood also foresees the company’s adjusted EBITDA surging upward in 2022, with the projected $300.3 million in adjusted EBITDA producing a potential year-over-year increase of 57.6 per cent, as well as an adjusted EBITDA margin of 15 per cent. Keywood’s 2023 projections show $348 million in adjusted EBITDA, a potential year-over-year increase of 15.9 per cent with a margin of 16 per cent.
The company’s valuation data also shows a position of strength for ATS, as Keywood calculates the company’s EV/Revenue multiple to have been 3.2x in 2021, with projected drops to 2.3x for 2022 and 2.1x for 2023 in play. The EV/EBITDA multiple projections fall more drastically, with Keywood forecasting a drop from the reported 24x in 2021 to a projected 15.2x in 2022, then to 13.1x for 2023.
Keywood said ATS has an active pipelines of over 30 targets for strategic growth.
“ATS is unique in that it’s one of the largest end-to-end automation providers (design, build, service), where larger, well known peers are typically focused on the build/product and service part. The industry is also highly fragmented with many smaller companies and leading to a broad acquisition opportunity set for ATS. ATS has also bolstered its M&A team recently, and we see an active pipeline of at least 30+ targets with a focus in life sciences/healthcare,” Keywood said.
As strong as ATS has performed, Keywood believes the company has even more to offer.
“We continue to see an opportunity for the valuation gap to bridge further as ATS executes well with solid organic tailwinds contributing, including from supply chain disruptions, inflation and a tight labour market,” Keywood said.
Overall, ATS shareholders have witnessed an exciting year of growth, as the company’s stock price has risen by 110 per cent for the year to date, having recently hit its high point of $46.84/share on September 7.