Still more upside to ATS Corp, says Stifel

Record sales, bookings and cash generation are all on display in the latest quarterly results from Canadian automation tech company ATS Corp (ATS Corp Stock Quote, Charts, News, Analysts, Financials TSX:ATS), whose share price has been shooting up this year. Stifel GMP analyst Justin Keywood sees more where that came from — the analyst reiterated a “Buy” rating on the stock in a Thursday report to clients, saying ATS continues to trade at a discount to its peer group.

Cambridge, Ontario-based automated solutions provider ATS reported its third quarter fiscal 2023 results on Thursday for the period ended January 1, 2023. The Q3 featured revenue up 18.3 per cent year-over-year to $647.0 million and adjusted basic earnings per share of $0.52, which was even with a year earlier.

ATS said its order bookings climbed 45.9 per cent to $979 million, while its backlog stood at $2.143 billion, also up 45.3 per cent from a year earlier.

“This performance demonstrates the need for our enabling solutions, the strength of our strategy and an unwavering commitment to the ATS Business Model despite continued supply chain challenges,” said CEO Andrew Hider in a press release.

Keywood noted the Q3 sales to be up ten per cent sequentially and above his Street-high forecast of $640 million (the consensus was $626.5 million). Keywood said of the growth in revenue, 9.8 per cent came organically and 7.5 per cent from acquisitions. 

The analyst said, “Of note, the EV (Electric Vehicles) segment was up 127.3 per cent year-over-year to $162 million, representing 25 per cent of sales and versus ~15 per cen prior as large EV contracts start to impact financials.”

On adjusted EBITDA, ATS’ $95.1 million was up 13.9 per cent year-over-year and beat both the Street at $92.4 million and Stifel’s call at $93.0 million.

“ATS described strong activity across all of its verticals, including Life Sciences and EV (75 per cent of the business) with some caution conveyed in Europe, but not a material headwind currently. Guided conversion of backlog decreased from 32-37 per cent previously to 29-32 per cent for FQ4, implying ~$660 million in sales at the mid-point and up double-digits year-over-year,” he said.

Keywood maintained a 12-month price target of $75 per share, which is based on a 16x multiple of his fiscal 2024 EV/EBITDA estimate and represented at press time a projected one-year return of 39 per cent.

“The stock continues to trade at a discount, especially in the context of FQ3 metrics and the growth ahead at 12.5x 2023 EBITDA versus comps at 16x and larger peer Rockwell Automation (ROK) at 18x. A U.S. share listing could also widen the investor base and help bridge the valuation gap,” Keywood wrote.