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On today’s TSX Breakouts report, there are 13 stocks on the positive breakouts list (stocks with positive price momentum), and 40 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is an industrials stock that was on the positive breakouts list earlier this month with its share price closing at a record high on May 19 - ATS Corp. (ATS-T), formerly known as Automation Tooling Systems Inc. The previous day, the company reported earnings results that handily beat the Street’s expectations, sending the share price up by more than 6 per cent on high volume.

On May 25, the stock began trading on the New York Stock Exchange. Lead underwriters Goldman Sachs and J.P. Morgan raised U.S. $246-million in a U.S. initial public offering (IPO). Analysts at U.S. firms may soon initiate coverage on the company, increasing the visibility of this Canadian stock.

A brief outline on ATS is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Headquartered in Cambridge, Ont., ATS provides automation systems and services to customers across various industries, such as life sciences, consumer products, electronics, food and beverage, chemicals, transportation and energy. The company operates over 60 manufacturing plants worldwide that are located in North America, Europe, Southeast Asia and China.

In terms of its fiscal 2023 geographical revenue breakdown (the company’s fiscal year-end was March 31, 2023), over 59 per cent stemmed from North America, 31.5 per cent from Europe and over 9 per cent from Asia and other regions.

In terms of its fiscal 2023 revenue breakdown by end markets, 47 per cent was from life sciences, over 22 per cent was from transportation, over 14 per cent from food and beverage, 12 per cent from consumer products and 4 per cent from energy.

The stock is dual-listed, trading on the New York Stock Exchange and the Toronto Stock Exchange under the ticker ATS.

Investment thesis

  • Attractive growth profile. In fiscal 2023, revenue growth amounted to 18 per cent (9-per-cent organic, or internal, growth and 9-per-cent acquisition growth).
  • Record backlog (a reflection of future revenue).
  • Healthy balance sheet to fund acquisition growth. At quarter-end, the net debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) stood at 2.7 times, within management’s targeted range of between 2 times and 3 times.
  • Potential key risks to consider: 1) the stock is not cheap, trading at a premium valuation at the upper end of its five-year historical average; and 2) economic weakness.

Quarterly earnings and outlook

Before the market opened on May 18, the company reported better-than-expected fourth-quarter results that topped the Street’s expectations.

Revenue came in at $730.8-million, up 21 per cent year-over-year, beating the consensus estimate of $665-million. Organic revenue growth was 16.5 per cent year-over-year. Adjusted EBITDA was $118-million, up 24.6 per cent year-over-year, surpassing the Street’s forecast of $99-million. Adjusted earnings per share came in at 73 cents, ahead of the consensus estimate of 53 cents.

Order bookings totaled $737-million. At quarter-end, the book-to-bill ratio for the trailing 12 months stood at 1.26:1. Generally, a book-to-bill ratio above 1 is positive, reflecting the company’s ability to convert order bookings into (billed) revenue.

At quarter-end, the company’s backlog was $2.153-billion, up from $2.143-billion reported at the end of the prior quarter.

That day, the share price rallied 6 per cent on high volume with over 1.14 million shares traded, well above the three-month historical daily average trading volume of approximately 340,000 shares.

In the earnings release, management highlighted tailwinds supporting continued earnings momentum, “the underlying trends driving customer demand for ATS solutions including rising labour costs, labour shortages, production onshoring or reshoring and the need for scalable, high-quality, energy-efficient production remain favourable.”

Dividend policy

The company does not pay its shareholders a dividend.

Analysts’ recommendations

According to Bloomberg, this industrials stock with a market capitalization of $5.8-billion has a unanimous buy recommendation.

The firms providing recent research coverage on the company are: Cormark Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, Stifel Canada and TD Securities.

Financial forecasts

For fiscal 2024, the Street is forecasting revenue of $2.85-billion, EBITDA of $458-million and earnings per share of $2.71. For fiscal 2025, the consensus revenue, EBITDA and earnings per share estimates are $2.99-billion, $492-million and $3.01, respectively.

Forecasts have been rising for the most part. Four months ago, the consensus revenue estimates were $2.74-billion for fiscal 2024 and $2.83-billion in fiscal 2025. EBITDA estimates were $444-million for fiscal 2024 and $464-million for fiscal 2025. The consensus earnings per share estimates were $2.74 for fiscal 2024 and $2.86 for fiscal 2025.


According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 14 times the fiscal 2025 consensus estimate, above its five-year historical average of 10.7 times but slightly below its peak multiple of approximately 15 times during this period. On a price-to-earnings basis, the stock is trading at 19.7 times the fiscal 2025 consensus estimate, above its five-year historical average of 17.2 times but below its peak multiple of over 23 times during this period.

The average one-year target price is $69.83, implying the share price has 18 per cent upside potential over the next 12 months. Individual target prices provided by six firms are: $66 (from National Bank’s Maxim Sytchev), $67, $69, $70, $72 and $75 (from Stifel’s Justin Keywood).

Insider transaction activity

Quarter-to-date, there has not been any trading activity in the public market reported by insiders.

Chart watch

The stock has been an outperformer.

Year-to-date, the stock price has rallied 41 per cent, making it the top performing stock in the S&P/TSX Industrials (sector) index. On May 19, the share price closed at a record high ($61.78).

Looking at key technical resistance and support levels, the stock faces initial overhead resistance around $62, near its record closing high. After that, there is a ceiling of resistance around $70. Looking at the downside, there is technical support around $50, near its 200-day moving average (at $48.70).

ESG Risk Rating

According to risk provider Sustainalytics, ATS has an environmental, social and governance (ESG) risk score of 33.7 as of April 13, 2023. A risk score of between 30 and 40 reflects a “high risk” rating.

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Source: Bloomberg

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

This report should not be considered an investment recommendation.

Follow Jennifer Dowty on Twitter: @jennifer_dowtyOpens in a new window

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