TSX:ATS - Post Discussion
Post by
retiredcf on May 15, 2023 12:22pm
TD
ATS Corporation
(ATS-T) C$56.17
Q4/F23 Earnings Preview
Event
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12-Month Target Price: C$63.00 |
12-Month Dividend (Est.): C$0.00 |
12-Month Total Return: 12.2% |
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ATS will report its Q4/F23 results on Thursday, May 18 (pre-market).
Impact: NEUTRAL
Q4/F23 Preview: We forecast revenue of $664mm, in line with consensus ($666mm) and ATS' backlog conversion guidance (29-32%). We have reduced our Q4/F23 EBITDA estimate to $98mm from $102mm to reflect another quarter of very elevated stock-based compensation (ATS' share-price appreciated ~35%), which puts us just marginally below the consensus forecast of $100mm. There is no consensus estimate for bookings, which will almost certainly decline vs. a record $979mm in Q3/F23, but we are looking for $803mm of bookings, inclusive of a US$120mm EV order, which corresponds to a 1.2x book-to-bill ratio, and would push the backlog to $2.3bln (up 59% y/y and ~6% q/q). Effectively, we believe that bookings will decline q/q, which could be an issue for the stock, but we believe the backlog will set a new record, and we see potential upside to our bookings forecast based on ATS' recent momentum.
Supply Chain Gradually Improving: Rockwell Automation's recent Q2/F23 earnings would suggest that demand for automation remains strong, (Rockwell is projecting F2023 organic growth of 13-17% vs. 11-15% previously) and that ATS' supply-chain velocity upstream is gradually improving, as chip supply eases. It may not be until H2/F24 that ATS' margins see the benefit of an improving supply chain, but we believe that we are at a positive inflection point.
TD Investment Conclusion
We view ATS as uniquely positioned to benefit from supply-chain de-risking, and we see continued scope for margin improvement and M&A upside. The stock is trading at 13.0x EV/2025E EBITDA (consensus), which is towards the high-end, but not above the high-end, of its five-year range of 9.8x-13.1x, and in line with our valuation multiple (13.0x). We believe that ATS deserves to trade at a higher multiple than it has historically, because the resiliency/growth potential of the business have meaningfully/sustainably improved over the past five years, based on: 1) a transformational level of M&A; 2) an increasing revenue contribution from services and products/machines (~60% of revenue) vs. bespoke systems integration; 3) a sales approach that is more proactive vs. reactive; and 4) more consistent project bidding/execution.
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