AEP stock has an 88% upside, this analyst says

With housing starts beating projections, Beacon analyst Russell Stanley says it’s time to take a look at Atlas Engineered Products (Atlas Engineered Products Stock Quote, Chart, News, Analysts, Financials TSXV:AEP).

In a research update to clients October 18, Stanley maintained his “Buy” rating and one-year price target of $2.25 on AEP, implying a return of 88 per cent at the time of publication.

The analyst says the macro picture may be changing for the company more rapidly than expected.

“The Canada Mortgage and Housing Corporation (CMHC) reported that September housing starts totaled 270k on a seasonally adjusted annualized basis (SAAR), beating consensus of 240k by 13%,” he wrote. “For Q3, the average SAAR was 259k, up 4% q/q from 249k in Q2. Raw housing starts, which are more relevant for projecting quarterly results for AEP, totaled 22k in September, up 14% m/m. For Q3, total starts were 62k, up 4% q/q from 60k in Q2, and down 7% y/y from 67k in Q3/22. We have trimmed our Q3 revenue forecast from $13.8M to $13.3M, reflecting 5% q/q organic growth plus a $1.5M contribution from the LCF acquisition completed in August.”

Stanley thinks AEP will post Adjusted EBITDA of $11-million on revenue of $53-million in fiscal 2023. He expects those numbers will improve to EBITDA of $22-million on a topline of $80-million the following year.

The analyst says the stock is cheap compared to its peers.

“AEP now trades at 4.5x our F2024 adjusted EBITDA forecast,” he noted. “This represents a 36% discount to the 7.1x at which the closest peer (BLDR-NYSE, Not Rated) trades. Potential catalysts include the Q3 results in November, and further M&A activity. “…The technical picture looks attractive, as the stock has confirmed its current uptrend, and may also be tracing out an ascending triangle pattern, which normally has bullish post-pattern implications.”