Stifel Q4 pick - cantechletter.com Custom automation and integration solutions provider ATS Automation Tooling Systems (ATS Automation Stock Quote, Charts, News, Analysts, Financials TSX:ATA) also got the nod from Stifel GMP, with analyst Justin Keywood highlighted the company’s strong organic growth at over ten per cent and an historically lucrative M&A program. Keywood said supply chain disruptions and an ongoing tight labour market is pushing demand for automation, while ATS’ track record on acquisitions has seen it deploy $1.1 billion in capital through value-creating transactions with a return on invested capital that has nearly doubled in the past four years from seven per cent to 13 per cent, according to Keywood.
“The pipeline remains wide with 30-plus targets, and ATS can add key products and build out its global network further. ATA is a rule of 40 stock,” Keywood wrote.
The analyst noted that ATS’ EBITDA margins expanded from 11 to 15 per cent over the past five years and that the company has an opportunity to grow them above 20 per cent with growth in higher margin sectors like Life Sciences and by increasing its after-market services business. As well, Keywood said investors shouldn’t forget about the electric vehicle market, which should have carmakers ramp up their automation investments.
ATS saw its share price rise dramatically over 2021 but this year the stock is currently at a negative return of about 15 per cent, which is not bad considering the extent of losses across the market. Keywood said even though ATS is not far from its all-time highs, the valuation is still cheap since the company’s M&A keeps re-setting the financials.
Keywood has reiterated a “Buy” rating on ATS and a target price of $66.00, which at the time of publication represented a projected one-year return of 63 per cent.
“ATA trades at 11x forward EBITDA versus peers at 15x-plus, and a U.S. listing could help bridge the valuation gap,” Keywood wrote.