It’s time to buy ATS Corp, Stifel says

With its stock beaten up because of comments on a GM conference call, now is the perfect time to be buying shares of ATS Corp (ATS Corp Stock Quote, News, Analysts TSX:ATS), says Stifel Canada analyst and Managing Director Justin Keywood.

On Tuesday, shares of ATS fell five per cent after a GM conference call in which the U.S. corporate giant admitted delays in electric vehicle production. Keywood notes that ATS has won C$745mm of EV bookings from one OEM, which is believed to be GM. But the analyst said he sees no relation between these things.

“ATS’ EV segment does not have any projects that are behind schedule to our knowledge or that are over budget, otherwise called “red projects”, the analyst said in a note to clients Tuesday. “Concentration risk is present within EV currently and as highlighted in our earlier preview note, but we see the comments from GM today as unrelated to ATS. We maintain our estimates, highlighting what we believe to be an opportunity, given the pressure today and ahead of Aug. 9th results.”

In the Tuesday research report, Keywood reiterated his “Buy” rating and $75.00 one-year price target on ATS. The analyst explained why he thinks the stock will hit that level.

“We maintain our Street high FQ1 revenue estimate at $740mm, up 21% YoY (consensus at $722mm), reflecting conversion of large EV orders, seasonal strength within food & beverage and recent tuck-in acquisitions,” he said.  “Our EBITDA estimate of $115mm is in-line with the Street and implied lower margins at 15.5% vs. consensus at ~15.9%. Our bookings forecast mirrors revenue, implying flat growth and book-to-bill of 1.0x. Overall, we see the quarter as relatively sound, given the strong growth period, including FQ2 and favorable valuation back-drop for automation. There are underlying risks developing with ATS, as outlined below, including customer concentration, a lull in bookings growth and pause in material M&A. We continue to monitor these risks but still see a path to our Street high C$75.00 target, given that valuation is not relatively stretched at 13x Fwrd EBITDA and there remains a strong case for new EV contracts and wide M&A opportunity.”

Keywood thinks ATS will generate EBITDA of C$478.7-million on revenue of $2.95-billion in fiscal 2024.