More Reactions Shares of ATS Corp. are “oversold and fundamentally deserve to go to prior highs,” according to National Bank Financial analyst Maxim Sytchev, touting an “attractive” valuation “given the company’s exposure to secular growth areas in Healthcare, food, EVs and nuclear.”
In a research note released Thursday, he called the Cambridge, Ont.-based factory automation system manufacturer’s third quarter a “good performance” and sees a bullish outlook “anchored in secularly positioned reality.”
Before the bell on Wesdnesday, ATS reported revenue of $736-million, up 25 per cent year-over-year and above both Mr. Sytchev’s $716-million estimate and the consensus forecast of $718-million with organic growth up 16.4 per cent from fiscal 2022. Adjusted EBITDA of $116.2-million was also better than anticipated ($113-million and $114-million, respectively).
“As with many other industrials (read ROK Resources Inc. (NYSE: ROK; Not Rated) and ABB Ltd. (SWX: ABBN; Not Rated)), investors have been increasingly worried that the pace of growth we’ve seen over the last 12-15 months is an aberration and we are cycling back to much lower momentum,” said Mr. Sytchev.
“While we certainly don’t expect the repeat of 16-per-cent organic growth any time soon, we believe the outlook/margin is good enough to establish a floor for the stock at this level (admittedly, shares sold off almost 20 per cent since the U.S. listing). Another reorganization effort is the fourth installment of a periodic alignment of capacity over the last several years; while we always get questions in terms of whether this portends further weakness, historically these changes lead to a more streamlined / cost-effective structure within ATS’s portfolio. At 11.4 times fiscal 2025 estimated EV/EBITDA, we believe shares are attractively valued for an entity with a much more secular growth profile vs. its own history, product-ization of the revenue shift, upside to margin profile over time to the 15-per-cent EBIT target and strong positioning with Healthcare, EV battery and nuclear verticals; importantly, the funnel in key verticals remains unchanged.”
Citing the “outlook of backlog-to-revenue conversion and growth year-to-date from backlog,” Mr. Sytchev raised his forecast “slightly” and maintained a $65 target and “outperform” rating for its shares. The average on the Street is $66.
Elsewhere, others making target changes include:
* Scotia’s Michael Doumet to $61 from $70 with a “sector outperform” rating.
“Higher rates and headlines on slower EV adoption/capex spend have weighed on sentiment through the last month,” said Mr. Doumet. “Last Q, Transportation revenues exceeded bookings by $100 million. It did again this quarter by a similar amount. Naturally, given the size of the Transportation bookings last year and the lumpiness of such projects, this was always expected (although announced deferrals from customers are an incremental negative, in our view). That said, ATS showed success in back filling booking with higher Life Sciences orders, in particular those related to auto-injectors (i.e. related GLP-1s).
“The 2QF24 revenue, booking, and funnel – in particular the trends in Life Sciences, Food & Beverage, and Energy – appear supportive of continued (albeit slowing organic) growth. ATS remains well positioned in several structural growth areas, Transportation included.”