AEP keeps “Buy” rating at Beacon Securities

Softer than expected housing starts aren’t killing Beacon Securities analyst Russell Stanley’s enthusiasm for Atlas Engineered Products (Atlas Engineered Products Stock Quote, Chart, News, Analysts, Financials TSXV:AEP).

On October 16, the CMHC reported that September housing starts came in 3% below the consensus of $230,000.

Stanley assessed the impact of this data on AEP.

“Housing starts are an imperfect measure of AEP’s demand picture, given the lag between reported starts and the physical need for trusses/panels/engineered wood products, but we still view them as directionally useful,” he said.

In a research update to clients October 16, Stanley maintained his “Buy” rating and price target of $2.75 on AEP, implying a return of 112% at the time of publication.

The analyst thinks AEP will post Adjusted EBITDA of $9.0-million on revenue of $56.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $15.0-million on a topline of $76.0-million in fiscal 2025.

Stanley says AEP is a cheap stock, compared to its peers.

“AEP now trades at 6.9x our F2025 adj EBITDA forecast, representing a 38% discount to the 11.1x at which Builders FirstSource (BLDR-NYSE, Not Rated) trades. Looking into F2026, when we expect the robotic/automation buildouts to begin contributing to revenue, AEP is trading at 3.4x our forecast, representing a 65% discount to the 9.6x at which BLDR trades. BLDR’s multiples have expanded by approximately 5% since our last note on September 17th, though consensus estimates for BLDR still contemplate a negative 1% EBITDA CAGR through F2026, whereas we still forecast a 46% CAGR for AEP,” he wrote. “While BLDR operates in the US market, and therefore faces a different-yet-similar macro environment, we continue to view BLDR as the closest peer, as AEP’s business is essentially a pureplay on BLDR’s Value-Added Products business, with BLDR also maintaining a significant commodity lumber and sheet goods operation. Potential company-specific catalysts for AEP include the Q3 results next month, further M&A activity, and progress toward the automation/robotic installations in NB, ON and BC.”