ATS stock is looking attractive, Stifel says

Following a $194-million settlement tied to a major EV contract, ATS Corporation (ATS Corporation Stock Quote, Chart, News, Analysts, Financials TSX:ATS) is poised to improve key value metrics, making now a good time to revisit the stock reiterating his “Buy” rating and C$52.00 target.

ATS provides advanced automation solutions for global manufacturers across various industries, including life sciences, food and beverage, transportation, consumer products, and energy. ATS employs over 7,500 people across more than 65 manufacturing sites and 85 offices worldwide, including North America, Europe, Asia, and Oceania.

Stifel analyst Justin Keywood said in a June 4 note that the firm was pleased to host ATS Corporation’s CEO and CFO at its Boston Cross Sector Insight Conference.

He said ATS is targeting a 400-basis-point margin expansion over four years, aiming to reach a 15% Adjusted EBIT margin, or about 17.5% Adjusted EBITDA. While the goal has been in place for some time, it now has a clearer timeline following the EV sector unwind and strong backlog and bookings, Keywood said.

The company’s most recent Adjusted EBITDA margin was 13.5%.

“Scale and operating leverage will be a driving factor, including potential M&A,” Keywood said. “Standardization and labour productivity to also contribute, along with a mix-shift change benefit with Life Sciences to comprise +60% of sales (higher margin segment), vs. ~40%, 18-months ago and EV, 8-10% (lower margins). We see credibility in the margin expansion goal, given ATS achieved 16.3% adj. EBITDA in FQ3/2024, prior to the EV unwind and hit a previous 500bps, 5-year expansion goal but was not sustained.”

ATS’ CEO described the M&A pipeline as “very active,” noting the company has completed around 20 deals and deployed $2-billion under the current management team.

“The track record of M&A has been favourable, including rising ROIC to a peak of near 14%, prior to the EV unwind,” Keywood said. “ATS is focused on acquiring within Life Sciences, Food & Beverage and services assets that expand multiple verticals. There could also be certain Nuclear assets in the funnel but longer cultivation periods. We view M&A as positive catalysts for the stock that could suggest margin expansion with scale benefits, dependent on the asset.”

Keywood expects ATS to generate C$369-million in Adjusted EBITDA on revenue of C$2.68 billion in fiscal 2025. He forecasts those figures to improve to C$433-million in EBITDA on C$2.94 billion in revenue in fiscal 2026.

ATS ended fiscal Q4 with net debt at 3.9x EBITDA, above its preferred 2–3x range, mainly due to a $360-million accounts receivable dispute with a major auto/EV client. A $194-million settlement, to be paid by the end of June, is expected to reduce leverage by 0.25x, with an additional 0.4x reduction forecast over the next 12 months. Management indicated leverage could fall below 3.0x by the end of fiscal 2026. The auto/EV contract had unfavourable terms, including no deposits or milestone billing, but future cash flow is expected to improve. While M&A may temporarily lift leverage again, ATS maintains strict acquisition criteria. The stock trades at 12x forward EBITDA, down from 15x during stronger market conditions 18 months ago, before the EV-related slowdown.

“We see valuation expanding with a combination of organic growth, margin expansion and deleveraging with M&A serving as potential catalysts,” Keywood said. “Our C$52 target price is based on 14x F2026E EBITDA. We see a time to revisit ATS.”

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