ATS Corp T.ATS

TD

[retiredcf]

Currently have a $48.00 target. GLTA

ATS Automation Tooling Systems Inc.

(ATA-T) C$41.29

Q2/F22 Earnings Preview

Event

ATS will report its Q2/F22 results before market open on Wednesday, November 3.

Impact: NEUTRAL

• Q2/F22 Earnings: Our revenue and EBITDA forecasts are roughly in line with the consensus following a minor downward revision to EBITDA due to higher stock- based compensation expense (the share-price was up 13% in Q2/F22).

• Bookings/Backlog: There is no consensus estimate for bookings, but we are looking for $525mm, well below record Q1/F22 bookings of $637mm, but above the TTM average of $485mm. There were no individual bookings announced in Q2/F22, which may suggest some downside risk to our forecast; however, we are more inclined to believe that bookings will again benefit from some pent-up demand as companies return to projects that were deferred due to the pandemic.

• Supply-chain Disruption: At last update, ATS had not experienced a material impact due to inflationary/supply-chain pressure, but was monitoring the environment closely. The company had seen lead times for short-lead-time items extend to 3-4 weeks vs. several days, but had adapted by adjusting its ordering patterns, carrying more stock, etc. We believe that supply-chain performance deteriorated somewhat in Q2/F22, but we see ATS as well-positioned on a relative basis. We would not expect ATS' customers to significantly adjust their capex plans, even in automotive, which has been hard-hit by the semiconductor shortage, as there is a rush to secure EV leadership. Project delivery delays due to missing components would represent deferred revenue (higher backlog) and we would see inflation-driven margin pressure as largely temporary because we would expect ATS to adjust its pricing and delivery schedules for incoming work in relatively short order. In the medium-to-long term, we anticipate that the duration and severity of recent supply-chain disruption, to which labour shortages have contributed meaningfully, will positively affect the demand for automation.

  TD Investment Conclusion

  We are attracted to ATS based on our view of its unique positioning to benefit from a reshoring of life sciences/food and beverage supply chains, the scope for continued margin improvement, and the prospect of further M&A upside.