AEP is undervalued, Beacon says

Following the close of a financing, Beacon Securities analyst Russell Stanley has maintained his “Buy” rating on Atlas Engineered Products (Atlas Engineered Products Stock Quote, Chart, News, Analysts, Financials TSXV:AEP).

On June 26, AEP reported that it had closed two financings for a total raise of $14.6-million. The company said the proceeds would go towards buying robotoc automation equipment at facilities in B.C., Ontario and New Brunswick.

The analyst summarized the development.

“AEP has closed its previously announced $9.6M best efforts private placement and $5.0M bought deal private placement (including full exercise of the overallotment), both at $1.35/sh. The 7.1M shares issued under the $9.6M component are subject to a four-month hold period. The proceeds are to be used for the purchase and installation of robotic automation equipment, as well as associated upgrades, at AEP facilities in British Columbia, Ontario, and New Brunswick. This also includes the construction of a new building at the existing AEP site in Clinton, Ontario, to house the robotics equipment, as well as associated new business development.”

In a research update to clients June 26, Stanley maintained his “Buy” rating and price target of $2.75 on AEP, implying a return of 91% at the time of publication.

The analyst thinks AEP will post Adjusted EBITDA of $11.0-million on revenue of $68.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $24.0-million on a topline of $100.0-million in fiscal 2025.

“AEP now trades at 4.8x our F2025E adjusted EBITDA forecast, and 3.6x our newly introduced F2026E adj EBITDA estimate. This represents a 35% discount to the 7.3x at which Builders FirstSource (BLDR-NYSE, Not Rated) trades based on consensus 2025E estimates, and a 49% discount to the 7.0x multiple on F2026E consensus (though based on a fewer number of published estimates). Consensus estimates for BLDR contemplate flat EBITDA growth through F2026, whereas our forecast for AEP contemplates a 48% CAGR. As shown on page 3, the stock has again confirmed its uptrend, with momentum shifting back into positive territory, with AEP continuing the outperformance of BLDR that began in January, the analyst added.