Canadian automation company ATS Corporation (TSX:ATS) could be a good entry point for investors interested in the electric vehicle (EV) space, according to analysts at Stifel GMP.
The Cambridge, Ontario-based firm, which trades on the Toronto Stock Exchange, recently booked over US$81 million (C$111 million) in orders for automated battery assembly systems from an existing electric vehicle customer.
In a note, Stifel highlighted that ATS has now secured US$458 million (C$624 million) in EV orders within the past three quarters.
READ: Electric vehicle plants could close soon if prices don't come down, CEO of Chrysler parent company warns
“We think ATS is a great way to gain early exposure to the EV space, and remains our top pick,” analysts wrote.
ATS has been in the EV space for about 10 years and focuses on EVs by providing rapid battery pack assembly technology.
“We continue to see a good backdrop of demand for automation and ATS generally outgrows the broader industry with its focus on valuable verticals. Industrial automation players appear to be better insulated from broader headwinds as well and a focus on ATS' resilient verticals, including serving Tier 1 customers, further gives us comfort,” Stifel wrote.
The analysts did note that there could be some near-term supply chain challenges for ATS to manage, which will likely dampen near-term margin expansion efforts, but added that headwinds are “being well navigated.”
“The electric vehicle segment is growing fast, and more new large contracts seem likely to surface, in our view, which has also historically been a catalyst for the stock,” the brokers wrote.
Potential $8B opportunity
Stifel estimates that the EV opportunity for ATS could be $8 billion, assuming order sizes of $100 million with 80 OEMs as the target customer set.
The analysts have a Buy rating and a C$66 price target on the stock.
“Overall, ATS continues to be in a good position with a strong base business, and we believe the stock could ratchet up quickly on M&A or new contract announcements,” analysts concluded. “ATS' valuation is also very reasonable at 10x C2023 EBITDA vs. peers at 15x, providing a margin of safety.”
Shares of ATS were trading around C$44.74 on Friday morning in Toronto.
Contact Angela at angela@proactiveinvestors.com
Follow her on Twitter @AHarmantas