Has ATS Automation run out of steam?

ATS Automation Tooling Systems (ATS Automation Stock Quote, Chart, News, Analysts, Financials TSX:ATA) has had a whale of a year, registering a double over the past 15 months, but is the stock still a buy? In a recent Bloomberg appearance, Greg Newman, senior wealth advisor and portfolio manager at Scotia Wealth Management, suggests he may have other ideas in relation to the Ontario-based custom automation and integration solutions company.

Newman previously recommended the stock at $28/share on March 12 of last year and ATA has seen a return of 75 per cent since then.

“At the time, we saw that this was a name that was really being ignored and it was really cheap relative to the group,” Newman said on a BNN Bloomberg segment on Monday. “It’s had a nice move. It’s not near its highs, it was better than this, and it’s come off a little bit since they just had their earnings.”

However, as good as things have been for ATS, Newman believes the story isn’t quite as good as it was, though it still holds some value.

“We still model a nice 11 per cent EPS growth from here, but it does trade at a slightly higher P/E than it did,” Newman said.

Overall, Newman believes ATS might be a bit quieter than it has been over the last year.

“We still like it longer term, but we feel that it’s had a big move,” Newman said. “Some of the catalysts we were waiting for have happened, and we did sell half.”

ATS set a company record with $546.8 million in revenue in its most recent quarterly report on February 3, producing a 48 per cent year-over-year increase while also generating 21.5 per cent organic growth in the quarter.

Stifel GMP analyst Justin Keywood has been consistently positive about ATS throughout its growth story, raising his target price on multiple occasions.

“ATS is executing well in an above-average growth industry with the backdrop of supply chain disruptions, rising costs/wages and a tight labour market,” Keywood said in his February 3 analysis. “ATS operates in the higher valued verticals within the industry, like Life Sciences (55 per cent of sales) and leading to even higher growth. The company is also executing on a disciplined M&A program through largely a cultivation strategy at favourable multiples.”

The Life Sciences vertical grew 42 per cent year-over-year, while the Food and Beverage vertical, which accounts for 20 per cent of the company’s revenue mix, went up 757 per cent, driven by the company’s CFT acquisition along with organic growth.

Meanwhile, ATS also produced $83.5 million in adjusted EBITDA for a 15.3 per cent margin in the quarter and a 68 per cent year-over-year increase.

“Consistent with our strategy, ATS made three recent acquisitions to broaden our portfolio in key areas of life sciences including aseptic fill-finish and pharmaceutical development,” said Andrew Hider, Chief Executive Officer of ATS Automation in the company’s February 2 press release. “The integrations of these businesses as well as CFT, BioDot, and NCC are progressing on plan as we focus on capturing all of the multi-year organic growth and cost synergy opportunities originally identified. With a larger team of talented and committed people, more capabilities for customers, and a sizeable funnel, ATS is well positioned for continued value creation.”

The company has also brought plenty of new business on board, as ATS reported order bookings of $671 million as of the end of the quarter, a 54.3 per cent increase on the $435 million in bookings it had at the same point last year.

Order backlog tells a similar story, as ATS crossed the 10 figure threshold to have $1.48 billion in backlog at the end of 2021, a 49.7 per cent increase over the $985 million reported at the same point last year.

ATS also reported year-end figures in its most recent statements, finishing its 2021 fiscal year at $1.58 billion in revenue for a 53.3 per cent year-over-year increase. Meanwhile, adjusted earnings from operations came in at $206.7 million and a 13.1 per cent margin, a step above the $113.6 million and 11 per cent margin ATS reported in its previous year-end.

Adjusted EBITDA also showed improvement for ATS, as the reported $244.9 million and 15.8 per cent margin significantly outpaced the $141.8 million and 13.8 per cent margin reported in the previous year.

From an investor perspective, ATS experienced a doubling in its diluted EPS from 44 cents per share to 88 cents per share.

ATS’s share price has been nearly automatic in its growth trajectory, with a 68.8 per cent return over the last 12 months. However, after reaching a 52-week high of $52.99/share on February 1, the stock took a nearly ten per cent dip to contribute to a loss of two per cent since the start of 2022.