Company Reports

We maintain our $327 per share fair value estimate for wide-moat Ansys after the firm reported first-quarter results below our expectations. We remind investors that in December 2023, narrow-moat Synopsys entered into a definitive agreement to acquire Ansys in a cash and stock deal for an enterprise value of approximately $35 billion. With this, Ansys’ management did not provide guidance or hold a call. Our $327 fair value estimate is blended, based on a 75% chance of Ansys shareholders receiving the $349 in value from Synopsys, and a 25% chance of the deal not materializing and Ansys continuing to operate independently at a stand-alone valuation of $262 per share.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to high customer switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of technological changes drastically.

We maintain our $327 fair value estimate for wide-moat Ansys after it reported fourth-quarter results above our expectations. We remind investors that in December 2023, narrow-moat Synopsys entered into a definitive agreement to acquire Ansys in a cash and stock deal for an enterprise value of approximately $35 billion. As such, Ansys’ management did not provide guidance, or hold a call. Our $327 fair value estimate is blended, based on a 75% chance of Ansys shareholders receiving the $349 in value from Synopsys, and a 25% chance of the deal being rejected and Ansys continuing to operate independently at a stand-alone valuation of $262 per share.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to high customer switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of technological changes drastically.

Wide-moat Ansys has entered into a definitive agreement to be acquired by narrow-moat Synopsys in a cash and stock deal for an enterprise value of approximately $35 billion or a total consideration of $390 per share (based on stock prices as of Dec. 21 before initial reports of this acquisition surfaced). We raise our fair value estimate for Ansys to $327 per share from $262 and view shares as fairly valued.

Bloomberg News reported on Dec. 22 the possibility of a takeover of Ansys, without revealing details of the potential acquirer or the premium that would likely be paid. If the takeover were to come to fruition, this would be an ideal outcome for investors, in our view, as we think Ansys shares were overvalued to begin with, given our undisturbed $262 fair value estimate versus where shares are currently trading upon the takeover possibility, near $330 per share (up 9%).

Wide-moat Ansys delivered third-quarter results that fell short of our top-line expectations but were above our expectations on the bottom line as expenses were lower than anticipated along with beneficial timing of investments for the quarterly results. Its top line and annual contract value, or ACV, was negatively impacted to the tune of about $20 million by incremental approval processes and export restrictions on the sale of some of its products in China. This headwind was not included in management’s initial guidance for the third quarter, resulting in the disappointing revenue results. However, Ansys has worked to become compliant with the restrictions through adjusting business operations and will resume the affected business, albeit at a slower pace. We would also note that its business in China is 5% of total ACV, but we would like to see operations resume as normal. When considering this headwind and management’s guidance, our model adjustments are modest, and we are maintaining our fair value estimate of $262 per share. Shares are down around 2% upon our writing, getting a bit closer to our fair value estimate, and we view shares as fairly valued. Ansys’ business in China will be important to monitor moving forward.

Ansys delivered solid second-quarter results that came ahead of our expectations as well as management’s, thanks to broad-based growth across all verticals. While the firm guided to a weaker third quarter due to a mix of license types that generate upfront recognition, management assured this is a temporary headwind, and increased its full-year revenue and annual contract value, or ACV, guidance. Given the strength we see in simulation demand paired with Ansys’ robust research and development channel, we expect revenue acceleration in 2023, and our long-term outlook is unchanged. With this, we are maintaining our fair value estimate for the wide-moat firm at $262 per share. While shares are down around 6%, we view current levels as overvalued and suggest investors wait for a better entry point to invest in this high-quality name.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to significant switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of high tech changes drastically.

Ansys reported robust first-quarter results, well surpassing our top- and bottom-line expectations as well as management's, thanks to broad-based growth across all regions (with Americas leading the pack). Altogether, we remain convinced Ansys will still see slight revenue acceleration in 2023, as we believe that research and development budgets are one of the least vulnerable in uncertain times due to their long-term orientation. We think it's important to stress that Ansys software is not at the mercy of its customers' total R&D headcount. Rather, Ansys receives revenue from customers based on total compute required for simulation needs. We think this lack of vulnerability is reflected in management's decision to reiterate its outlook for the year. All in all, we are maintaining our fair value estimate for the wide-moat firm at $262 per share, which places the stock in overvalued territory. We recommend investors hold off on investing in this high-quality name until the market bakes in more realistic revenue and margin assumptions for this mature company.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to significant switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of high tech changes drastically.

Ansys reported stellar fourth-quarter results, well surpassing our top- and bottom-line expectations due to broad-based strength and ample execution. We think the strong results support our thesis that Ansys' portfolio of simulation offerings is top notch with little commensurable competition. With a more robust guide for actual cash value in fiscal 2023, which we believe influences ACV levels thereafter, we are adjusting our model, which yields a fair value estimate raise to $262 per share from $242 per share. After shares are up about 12% upon the news to near $298 per share, we continue to view shares as overvalued and urge waiting for a greater pullback before investing. While we believe Ansys' wide moat is crash-tested, we think there is a cap to the firm's long-term growth rates and margin expansion. We remind investors that the stock has been volatile, having dipped to $200 per share in October. We believe the mismatch between revenue and ACV is partly responsible for the volatility.

Ansys’ third-quarter results were strong, beating management’s annual contract value, revenue, operating margin, and EPS outlook and leading to a raised constant-currency outlook all around for the year. We are maintaining our $242 fair value estimate for the simulation software standard, as fourth-quarter results are expected to come in slightly lower than originally forecast due to the strong U.S. dollar offsetting the effects of constant-currency strength that will seep into the long run. We view Ansys shares as nicely undervalued, trading near $211. We consider this to be a rare opportunity to buy into the wide-moat name, as we believe the stock is typically overvalued in normal economic times due to the topnotch quality of the company, which normally leads to a premium, in our view.

Wide-moat Ansys beat FactSet consensus' and our second-quarter non-GAAP estimates as macroeconomic weakness appears to be having little effect on research and development investment, to which the company's software is heavily leveraged. Ansys gave slightly rosier annual contract value guidance for the year, contrasted by lower absolute midpoints for revenue and non-GAAP earnings per share guidance due to foreign-exchange headwinds. We are maintaining our $242 fair value estimate for the simulation software leader. We view the shares as overvalued, trading near $289, and thus recommend investors wait for a better point of entry before buying this high-quality stock.

Wide-moat Ansys opened its fiscal year on a positive note by posting first-quarter results that surpassed management's guidance in all metrics, most notably in annual contract value. Additionally, management raised guidance for the full fiscal year in ACV, revenue, earnings per share, and operating cash flows with all metrics at constant currency. On a nonconstant currency basis, the outlook is materially impacted by the strengthening of the U.S. dollar and accounts for an estimated $47 million in foreign exchange headwinds to ACV. Full-year revenue also stands to be impacted by macroeconomic conditions, with an estimated $15 million impact stemming from Russia and Belarus sanctions, coupled with $45 million in foreign exchange headwinds. As such, we are maintaining our $242 fair value estimate for Ansys. Shares are trading down to around $270 per share, and we continue to view shares as overvalued.

Ansys reported excellent fourth-quarter results, beating management’s guidance across all key metrics. Management's 2022 looks promising as ACV growth remains strong and obtainable as Ansys releases new simulation functionalities and customers move to lease licenses from perpetual ones. All in all, we are maintaining our $242 fair value estimate for the wide-moat simulation standard. After shares are up 1% upon the news to near $299 per share, we continue to view shares as overvalued and recommend waiting for a greater pullback before investing. We think the discrepancy between our forecasts and the market lies in long-term growth rates. Still, we continue to believe Ansys' software benefits from robust switching costs that make Ansys a wide-moat company with incredible stability, as it dominates the simulation market through a breadth of use cases. We believe our model, which implies a five-year compound annual revenue growth rate of 8% and midcycle 45% operating margin, is already baking in exceptional and realistic outcomes.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to significant switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of high tech changes drastically.

Wide-moat Ansys’ third-quarter results were strong, as the company's clients keep up robust investment in research and development and simulation makes its way into new use cases along the product lifecycle, thanks to the push for smart devices and manufacturing. The company managed to beat FactSet consensus on the top and bottom lines as well as our forecasts, even with our expectations ahead of consensus estimates. With these strong results, Ansys inched its full-year outlook higher, as its stressed its confidence that it is not affected by supply chain constraints because its simulation offerings are tied to the product design, not the number of products manufactured. We are maintaining our $242 fair value estimate for the simulation standard firm. With the shares up nearly 5% upon results to above $400, we continue to view Ansys as significantly overvalued. We have strong conviction in this thesis, as our model already implies robust top-line growth and outstanding margin expansion over the next 10 years coupled with a below-average cost of equity.

In wide-moat Ansys’ second quarter, both enterprise customers and small/midsize customers exceeded spending predictions, leading to a healthy non-GAAP EPS beat for the company compared with FactSet and our previous estimates. Relatedly, Ansys gave rosier guidance for the year, which we think it will be able to beat, given how strong the company’s metric of annualized contract value is trending. After accounting for this in our model, we increased Ansys’ long-term tax rate slightly based on our probability-weighted estimate for the U.S. corporate tax rate. Altogether, we are increasing our fair value estimate for the simulation software standard to $242 per share from $237. We view shares of Ansys as still significantly overvalued, trading near $365 per share. We find the market’s valuation of Ansys hard to understand, as our model already entails a healthy five-year revenue CAGR of 10% and stellar terminal operating margins at 46%. We continue to think that Ansys’ wide moat, and thus the confidence in its ability to have excess returns over invested capital, is likely leading to a market premium for the name.

Ansys is an industry leader in engineering simulation software, with simulation solvers across a wide range of disciplines--from electromagnetics to fluid dynamics. We think Ansys warrants a wide economic moat, thanks to significant switching costs, network effect, and intangible assets--all supported by the complexity of problems Ansys seeks to solve. We think the company’s outlook is bright as it continues to prove its breadth in addressing diverse simulation problems as the nature of high tech changes drastically.