Company Reports

We maintain our $138 per share fair value estimate for narrow-moat PTC after the firm reported fiscal second-quarter results above our expectations. We are pleased with the continued business momentum under PTC’s new CEO, and believe the firm is positioning its portfolio well to capitalize on digital transformation opportunities in end markets. Management narrowed its 2024 guidance ranges for both the top and bottom line, and also adjusted its medium-term target for annualized recurring revenue growth. While shares dropped 5% after hours, likely due to lower-than-expected third-quarter guidance, we continue to view the stock as overvalued.

We maintain our $138 per share fair value estimate for narrow-moat PTC after the firm reported strong fiscal-first-quarter results ahead of our forecasts for the top and bottom lines. We were most impressed with the firm’s continued momentum in annual recurring revenue, or ARR, growth, which we view as the leading indicator for business performance. Management reiterated its fiscal 2024 targets, as well as guiding to a sequentially stronger second quarter, driven by expected momentum from its product lifecycle management, or PLM, and service lifecycle management, or SLM, offerings. Despite an unfavorable selling environment and ongoing currency volatility, we are encouraged by the firm’s ARR growth, customer retention, and growing interest in its software-as-a-service offering. We view the stock as overvalued.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years.

Narrow-moat PTC finished its fourth quarter of fiscal 2023 with results slightly below our estimates for both the top and bottom lines. However, more relevant is its solid annualized recurring revenue growth which we view as a better indicator of the firm’s business performance. PTC’s outlook for fiscal 2024 was above our expectations on the top line, and management raised its ARR guidance as PTC builds product momentum, particularly from its Windchill and Codebeamer offerings. Difficult macroenvironment and foreign exchange volatility figures are likely to persist throughout fiscal 2024, but we are encouraged by PTC’s ARR growth, customer retention, and interest in its software-as-a-service offering. When rolling our model forward and adjusting our fiscal 2024 assumptions, we are increasing our fair value estimate to $138 per share from $125 per share, leaving the stock as fairly valued.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

PTC’s third-quarter results beat our expectations on the top and bottom line, leading to a slight lift in full-year annualized recurring revenue, or ARR, which should make for a more placid major succession change announced with results. Neil Barua, president of PTC’s Service Lifecycle Management’s business, will take the helm as CEO, replacing retiring long-term CEO James Heppelman in February 2024. Ahead of PTC’s acquisition of ServiceMax in 2023, Barua was CEO of ServiceMax. While ServiceMax makes up a considerable amount of revenue—it contributed 11 points to this quarter’s growth—we are surprised by what the news indicates in terms of the firm’s overall emphasis on service lifecycle management. We think that service lifecycle management is a sizable growth driver into the future, but we would have preferred a CEO coming from the firm’s digital thread group, which we think reflects even wider opportunities. Nonetheless, Barua has a high-quality executive pedigree having served as a CEO twice (first at IPC Systems before ServiceMax). While we are eager to hear more about Barua’s plans for PTC’s strategy, for now we are maintaining our fair value estimate for the narrow-moat name at $125 per share, leaving the stock overvalued.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

Narrow-moat PTC’s second-quarter earnings were solid, reflecting a slight beat on the top and bottom lines. Like Dassault Systemes, which reported this morning, PTC saw bookings weakness in China. But overall, PTC pulled through with solid organic and inorganic growth. We were pleased to see that the firm exceeded its own expectations for annual recurring revenue, or ARR, which we consider more telling than revenue performance. Looking beyond earnings, we’ve reflected on PTC’s cost of capital and we are now baking in a more favorable cost of equity for PTC, in line with peers Autodesk and Dassault Systemes. As a result, we are increasing our fair value estimate to $125 per share from $111 per share for the CAD and PLM software vendors. This change places the stock in fair value territory, though below FactSet consensus. In a nutshell, we believe the Street is not being as realistic in terms of PTC’s long-term addressable market, which we think is expansive but at some point limited by its more niche core than the likes of Autodesk or Dassault Systemes.

Narrow-moat PTC’s first-quarter earnings revealed solid results amid macroeconomic weakness. While currency continues to be a significant headwind for PTC, the firm found broad-based strength in overall renewals, even when not accounting for pricing increases. As a result, PTC beat our earnings expectations and surpassed the high end of their annual recurring revenue, or ARR, forecasts. Although PTC is still experiencing delays in customer expansions due to customer conservatism, the firm is raising guidance for the year following the solid results this quarter. As a result, we are increasing our fair value estimate to $111 per share from $106 per share for the narrow-moat name.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

Narrow-moat PTC hosted its fiscal 2023 investor day today, shedding light on near and midterm guidance while highlighting its intended acquisition of ServiceMax for $1.46 billion, which is expected to close in January 2023. The deal will be funded with both cash and debt in two stages ($808 million at closing and $650 million in October). We assign the acquisition as having a 95% chance of going through as we do not foresee any regulatory hurdles.

Narrow-moat PTC finished its fourth quarter of fiscal 2022 with results above our estimates for both the top and bottom line. We view the excellent strength in annualized recurring revenue, or ARR, and positive momentum building from the software-as-a-service, or SaaS, transition as serving a solid foundation for expansion over the next fiscal year. For fiscal 2023, management provided a more modest outlook due to anticipated currency and geopolitical headwinds; however, we remain confident that their robust demand base, sticky software, and recurring revenue model will offset constraints in the long term. With this, we maintain our fair value estimate of $105, and view the current share price of $120 as overvalued.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

PTC’s third-quarter results fell short of our top-line expectations while meeting them on the bottom line. As previously noted, due to the impact from ASC 606, top-line growth is not the best metric to evaluate PTC’s business. Instead, annual recurring revenue, or ARR, is the better metric to determine demand which exceeded management’s expectations in the quarter and had guidance raised for the fiscal year. On the other hand, PTC faces foreign exchange headwinds of $81 million and a continued $4 million impact on ARR from exiting Russia.

PTC’s second-quarter results exceed our expectations on both the top- and bottom-line—but as management has noted before, year-over-year growth on the top and bottom line isn't the most indicative metric of PTC's business due to impact from ASC 606. Nonetheless, annual recurring revenue, or ARR, a better metric to determine demand of PTC's offerings, exceeded management's expected range, even despite a $4 million impact from exiting business in Russia. All considered, we’re maintaining our fair value estimate for the narrow-moat name of $105 per share, which leaves the stock trading in fair value territory as it trades near $98 per share in after hours.

Narrow-moat PTC kicked off its fiscal year 2022 by posting results slightly below our top- and bottom-line expectations. Nonetheless, results weren't discouraging, in our view, as PTC is accelerating its SaaS transition, which brings with it short-term growth headwinds--but worthwhile benefits in the long term. Despite slight earnings misses, we are raising our fair value estimate to $105 per share from $97, in most part due to rosier long-term corporate tax rates that we've baked in after updating in-house estimates. Shares remained flat after hours, trading around $113 per share, leaving PTC fairly valued.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.

PTC operates in the high-end computer-assisted design software market, but we view this market as mature and don’t foresee significant top-line growth in this area. PTC’s foray into growth areas such as "Internet of Things," AR, and midmarket CAD, on the other hand, will significantly add growth to the top line, in our view, as we expect PTC’s revenue mix to shift significantly to these areas over the next 10 years. While we’re still confident in PTC’s narrow moat, we’ve assigned a stable moat trend rating to the company due to the relative nascence of its growth areas.