Stifel says this Canadian stock could benefit from the U.S. auto workers strike

The U.S. auto workers strike that began as the clock struck twelve on February 15 may be a positive for one Canadian stock, says Stifel analyst Justin Keywood.

On Friday, Approximately 13,000 United Auto Workers member began strike action at General Motors plant in Wentzville, Missouri, a Stellantis Jeep plant in Toledo, and a Ford factory in Wayne Michigan.

“For the first time in our history we will strike all three of the Big Three,” UAW President Shawn Fain said.

The analyst explained how Ontario-based ATS Corp (ATS Corp Stock Quote, Chart, News, Analysts, Financials TSX:ATS), which specializes in automation,  stands to benefit from the action.

“The UAW and Detroit automakers are in the late stages of negotiations to avoid a strike with an 11:59pm ET deadline tonight,” Keywood explained. “Key demands from the union include a 40% pay increase and reduced 32-hour workweek. Although, we do not have an opinion on the merits of the strike, the potential work stoppage highlights record job action in 2023 (chart below). Tight labor markets, low unemployment and lagging wage growth vs. high inflation are leading to calls for increased wages. We see the backdrop as supportive for continued organic strength within the automation industry, where we favor ATS with pure-play exposure at reasonable valuation. ATS also typically outgrows the industry average at ~9% organically as M&A pursuits continue with a balance sheet to support. We also acknowledge the potential risk of disruptions that a strike could cause for ATS’ EV segment but see automation as not impacted at this point.”

In a research update to clients February 14, Keywood maintained his “Buy” rating and one-year price target of $75.00 on ATS.

The analyst thinks ATS will post EBITDA of $402.9-million on revenue of $2.58-billion in fiscal 2023. He expects those numbers will improve to EBITDA of $478.8-million on a topline of $2.95-billion the following year.