Scotiabank analyst Jonathan Goldman has renewed his coverage of ATS Corporation (ATS, Financial), assigning it a Sector Perform rating and setting a price target of C$43. The firm considers ATS a solid long-term investment, attributing this to its role as a significant player in the growing automation sector. However, the analyst highlights that challenges such as slower-than-expected margin recovery and increased working capital—stemming from a dispute with an electric vehicle customer—are likely to delay the company's plans for deleveraging. These factors could also put a temporary hold on acquisitions, which are crucial for any reevaluation of the stock's performance.
ATS Key Business Developments
Release Date: February 05, 2025
- Order Bookings: $883 million, up 32% from Q3 last year.
- Revenue: $652 million, down 13% from Q3 last year.
- Adjusted Earnings from Operations: $65.7 million, a decrease of 35% from the prior year.
- Gross Margin: 30.7%, a 216 basis points improvement from last year.
- SG&A Expenses: $130.6 million, a $22.7 million increase over the prior year.
- Earnings Per Share (EPS): $0.32 on an adjusted basis, down from last year.
- Order Backlog: Approximately $2.1 billion.
- Cash Flow from Operating Activities: $66.79 million.
- CapEx and Intangible Assets Investment: $16.4 million.
- Net Debt to Adjusted EBITDA Ratio: 3.7 times on a pro forma basis.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ATS Corp (ATS, Financial) reported its second highest bookings quarter in company history, with order bookings reaching $883 million, a 32% increase from the previous year.
- The company has a strong order backlog of approximately $2.1 billion, providing good revenue visibility moving forward.
- Life sciences order backlog reached a record $1.2 billion, with strong bookings in key submarkets such as radiopharma and wearable devices.
- ATS Corp (ATS) is expanding its market reach through acquisitions and integration, such as the acquisition of Paxiom, which contributed to a 22% increase in the food and beverage backlog.
- The company is focused on innovation and sustainability, highlighted by its annual Innovation Summit and the release of its fifth annual sustainability report.
Negative Points
- Q3 revenues were $652 million, down 13% from the same quarter last year, primarily due to lower revenues in the transportation sector.
- Adjusted earnings from operations decreased by 35% to $65.7 million, reflecting lower revenue volumes, particularly in transportation.
- The company faces potential short-term complexities due to possible tariffs between the US and Canada, which could impact operations.
- ATS Corp (ATS) is dealing with a dispute involving a large EV customer, affecting working capital and revenue collection.
- The company's net debt to adjusted EBITDA ratio is currently at 3.7 times, above its target range of two to three times, indicating a need for leverage reduction.
