ATS Corp keeps Buy rating with Stifel

$5 billion market cap stock ATS Corp (ATS Corp Stock Quote, Charts, News, Analysts, Financials TSX:ATS) has been hitting all-time highs this week, which is good for present shareholders, but what about the rest of us looking on with envy from the sidelines?

No problem, says Stifel GMP analyst Justin Keywood, who sees further upside to the stock, citing ATS’s record backlog, M&A potential and the early innings of an EV boom that will play into the company’s strengths. Keywood delivered an update to clients on Thursday where he reiterated a “Buy” rating on the stock and $75.00 target, good for a projected one-year return at the time of publication of 31 per cent.

“The automation industry continues to experience robust growth as indicated by recent peer results, and we see ATS as a solid way to play the space with a path to our Street-high $75.00 target price,” said Keywood in his report.

Keywood said ATS’ backlog at the end of the last reported quarter was up 45 per cent year-over-year to $2.14 billion, with ATS typically taking nine to 12 months to convert and thus giving investors lots of visibility on the company’s revenue path.

On M&A, Keywood noted that since 2018 ATS has deployed $1.4 billion of capital on 15 deals, with the return on equity more than doubling from five to 13 per cent.

“While we have no specific knowledge, we believe that ATS is analyzing dozens of deals, and we expect M&A to resume more materially, given the strategy to broaden both product offering and geographic reach,” he said.

On the current electric vehicle moment, Keywood said demand is inflecting, as original equipment manufacturers (OEMs) and others are ramping up manufacturing. The analyst said ATS’ EV segment has more or less doubled recently, with the number of contracts in EVs and EV battery assembly piling up and he said ATS is currently speaking with dozens of OEMs about their EV plans.

On the possible risks with a name like ATS, Keywood pointed to the potential for a recession to slow down demand, but at the same time he argued that industrial automation as a sector looks to be largely insulated from such macro headwinds.

Ahead of fiscal fourth quarter earnings from ATS arriving on May 18, Keywood said he is forecasting sales at $675 million and adjusted EBITDA at $101 million.