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ATS Corp scores target raise from Stifel

Record backlog and bookings have baked in growth for ATS Corp (ATS Corporation Stock Quote, Charts, News, Analysts, Financials TSX:ATS), according to Stifel GMP analyst Justin Keywood, who raised his target price in a Tuesday note to clients. Keywood said ATS is in the early innings of a great opportunity in the electric vehicle (EV) space.

Cambridge, Ontario-based ATS announced last week that its Industrial Automation business received new order bookings for automated battery assembly systems for an existing global automotive customer. Valued at US$81.3 million, the order bookings are for the design, build and installation of turnkey battery assembly systems, with the bookings to be recorded in ATS’ third quarter fiscal 2023 and should be executed over the next 18-24 months.

“These bookings again demonstrate our ability to execute leading solutions in this dynamic space,” said Andrew Hider, CEO of ATS Corporation, in a press release.

Keywood said altogether ATS has secured US$458 million of new EV bookings over the past three quarters, which helps provide visibility to the business through 2024. Keywood said ATS’ automation business is mostly in resilient segments of the market at 80 per cent of its sales.

“We also see prospects for ATS to resume M&A after a bit of a pause in 2022, where there is a strong track record with ROIC almost doubling since 2018. The prospects of a U.S. stock listing could also help widen the investor base and bridge the gap in valuation, where ATS is trading at only ~11.5x C2023 EBITDA, 30 per cent below peers,” Keywood wrote.

Keywood noted that ATS’ share price has risen about 250 per cent since Hider took the helm as CEO in March 2017, but the analyst sees more upside and has reiterated ATS as a Top Pick. With a maintained “Buy” rating on the stock, Keywood upped his target from $66.00 to $75.00, representing at press time a projected one-year return of 58 per cent.

“ATS is trading at only 11.5x C2023 EBITDA, 30 per cent lower than peers. The disconnect in valuation could be from historical investor baggage, where the business was much different 5-10 years ago and investors have yet to fully recognize the evolution. The Canadian-only exchange listing may also be hampering valuation, despite ATS being global in nature, including ~50 per cent exposure to the U.S.” he wrote.

Looking ahead, Keywood is estimating ATS’ fiscal 2023 revenue and EBITDA at $2.53 billion and $396.1 million, respectively, and its fiscal 2024 revenue and EBITDA at $2.90 billion and $447.0 million, respectively.

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