ATS Corp is still a buy, Stifel says

A summer that is on pace to set records for the number of strikes highlights the secular strength of ATS Corp (ATS Corp Stock Quote, Chart, News, Analysts, Financials TSX:ATS) says Stifel analyst Justin Keywood.

In a research update to clients August 22, Keywood maintained his “Buy” rating and $75.00 target on ATS, which closed the previous day at $55.54.

The analyst says he sees a number of organic growth drivers for the company.

“ATS benefits from several supportive secular trends for automation with an average of 9% organic growth over the past six years and generally outpacing the broader industry at 4-6%,” he said. “ATS outgrows the industry with a focus in high valued verticals, including Life Sciences, along with revenue synergies across acquired businesses and the implementation of new technologies and the ABM. On-shoring or re-shoring has, and continues to be a supportive trend within automation, but rising wages have been a longer-term trend and potentially in the midst of an inflection with recent union action. ATS last recorded organic growth of 15% in FQ1 (summary on pg2.), spurred by Electric Vehicle demand, and we forecast elevated organic growth of 12-15% in F2024.”

Keywood says a major auto strike would hurt ATS relatively less than its competitors.

“We also point out possible variability to new EV orders won for ATS, including with a large potential strike at the big three auto OEMs this fall, but the backdrop supports continued strength within automation,” the analyst added.  “ATS’ stock has set back recently to around its May, U.S. IPO price of US$41/share (~C$55) with choppy markets, a developing lull in EV bookings and an M&A program that has cooled recently. However, the secular trends remain in-tact, including from rising wages, and we believe that M&A will reignite as the potential for new large contract wins remain. This presents an opportunity in our view with ATS trading at 12.5x F2024 EBITDA, down from a high of 14x and as compared to peers at 15x, including Rockwell Automation (ROK) at 16x.”

The analyst thinks ATS will post EBITDA of $479-million on revenue of $2.95-billion in fiscal 2024.