On Tuesday, Goldman Sachs reiterated its Sell rating on ATS Corp (NYSE:ATS) stock, maintaining a $30.00 price target.
The firm's analysis highlighted that while ATS Corp's first-quarter adjusted EBITDA met the consensus estimates from Visible Alpha, and sales were in line due to strong performance in Consumer Products, challenges persist.
The Consumer Products sector saw a 37% increase compared to consensus, which helped to balance a 12.5% decline in the Food & Beverage sector.
ATS Corp's organic bookings rose by 18% year-over-year, and its backlog increased by 5% quarter-over-quarter. However, on an annual basis, the backlog decreased by 7%, with a significant 50% year-over-year drop in the Transportation sector's backlog. The company has announced measures to reduce costs in its Transportation business, a move seen as positive by the analyst.
The company forecasts a backlog conversion rate of 33-36% for the second quarter of fiscal year 2025, suggesting revenues between C$621 million and C$678 million, with Goldman Sachs projecting C$672 million.
Management anticipates a 250-300 basis point impact on margins in the second quarter due to lower volumes and increased SG&A expenses from mergers and acquisitions.
The report also noted that working capital remains high in both the Life Sciences and Electric Vehicle (EV) segments, leading to increased net financing costs.
Consequently, Goldman Sachs has lowered its fiscal year 2025 earnings per share (EPS) estimate from $2.50 to $2.20, reflecting the recent miss, expected margin pressures in the second and third quarters, and higher costs. The firm also reduced its EPS forecasts for fiscal years 2026 and 2027 by $0.25 per year.
Despite acknowledging the sequential improvement in backlog, Goldman Sachs reaffirmed its Sell rating, citing better gross margins available in other companies within its coverage. The $30 price target is based on a projected free cash flow yield of approximately 5.0% for calendar year 2026.
InvestingPro Insights
According to data from InvestingPro, ATS Corp (NYSE:ATS) is navigating a challenging period, as evidenced by the recent revisions by analysts. Seven analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds for the company. This aligns with Goldman Sachs’ cautious stance on the stock. Additionally, ATS Corp is trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 20.11 and an adjusted P/E ratio over the last twelve months as of Q1 2025 at 17.25. This suggests that the stock may be undervalued given its earnings trajectory.
The company's stock performance has been underwhelming, with a one-month price total return of -19.63% and a six-month return of -30.95%, reflecting the broader market's concerns. Despite these challenges, ATS Corp's liquid assets exceed short-term obligations, providing the company with some financial flexibility in the near term. Furthermore, the stock is trading near its 52-week low, which might attract investors looking for potential bargains in the market.
For those interested in a deeper analysis, InvestingPro offers additional insights on ATS Corp, with more InvestingPro Tips available for investors seeking comprehensive data to guide their investment decisions.
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