TD Raise Target By 13% (from $62 to $70). GLTA
ATS Corporation
(ATS-T) C$59.55
Q3/F24 Earnings Preview
Event
ATS will report its Q3/F24 results on Wednesday, February 7 (pre-market).
Impact: NEUTRAL, but we are raising our EV/EBITDA valuation multiple
by 1.0x to reflect peer/market multiple expansion
Q3/F24 Results: We have updated our forecasts to reflect an earlier-than-
expected closing of the Avidity Sciences deal, among other adjustments. Our
revised revenue estimate of $740mm (up 14% y/y) is in line with consensus
($742mm), as is our revised EBITDA estimate of $115mm (consensus is
$114mm), which implies an EBITDA margin of 15.5%, roughly flat vs. 15.6% in
Q3/F23 (consensus implies a 15.4% EBITDA margin).
Tough Prior-year Bookings Comparable: The potential for Q3/F24 bookings to
disappoint is our biggest concern, as Q3/F23 bookings were a record $979mm
and included ~US$220mm of EV order bookings, which have not repeated. That
said, ATS navigated a very similar set-up last quarter, and the stock gained
~10% on the day of the earnings release, based on: 1) bookings of $742mm,
which were down 8% y/y, but still ~6% above vs. consensus of ~$700mm and 2) a
book-to-bill ratio of 1.01x vs. consensus of 0.98x. We/the Street are modelling Q3/
F24 bookings of $737mm/$726mm and a book-to-bill ratio of just less than ~1.0x,
which should be achievable based on the company's Q2/F24 results.
TD Investment Conclusion
We have increased our EV/EBITDA valuation multiple to 13.5x from 12.5x to
reflect peer/market multiple expansion and rolled forward our target-price horizon
by one quarter. The 13.5x multiple is somewhat above the high end of ATS'
10-year range of 9.8x-13.0x, but we believe that multiple expansion beyond the
historical range is justified, because the resiliency and growth potential of the
business have meaningfully and sustainably improved over the past five years. We
see ATS as uniquely positioned to benefit from supply-chain de-risking and
largely exposed to economically resilient end-markets. Incremental large EV
orders seem unlikely in the near term, but we anticipate offsetting strength in life
sciences, particularly in auto-injectors/auto-fillers and radiopharma. We expect ATS
to resume a trajectory of consistent margin improvement once lead times across
its supply chain normalize, and we see continued scope for M&A upside.