ANSYS' Buys CEI, Boosts Simulation Data Processing Ability

ANSYS Inc.’s (NASDAQ:ANSS) aggressive acquisition strategy has played a pivotal role in paving its growth trajectory in the last few years. Tuck-in acquisitions have not only expanded product offerings but also its capabilities in providing high-end design simulation software.

ANSYS is now focused on improving capability to process and analyze simulation data. Toward this purpose, the company recently acquired Apex, NC-based Computational Engineering International (CEI) for an undisclosed amount.

CEI’s flagship product – EnSight – is well known for its superior capability in analyzing, visualizing and communicating simulation data. Currently, the company has more than 750 customers.

We believe that the integration of EnSight with ANSYS’s Workbench will help the company win new contracts from Internet of Things (IoT) based original equipment designers. Per engineering.com, the visualization capabilities of EnSight will also enable ANSYS to address the simulation data needs of Augmented Reality/ Virtual Reality device providers.

ANSYS shares increased 1.41% to close at $124.59 on Jul 12. Notably, the company has outperformed the S&P 500 on a year-to-date basis. While the stock returned 34.7%, the Index gained 8.4%.

Acquisitions Expand TAM

We note that ANSYS’s timely acquisitions have significantly expanded product portfolio. Acquisitions like SpaceClaim, Reaction Design and Evolutionary Engineering have expanded the company’s expertise in 3D modelling, chemistry simulation and cloud-based composite analysis and optimization technology.

These have eventually expanded ANSYS’s total addressable market (TAM). The company can now address the needs of diverse industries like IoT, next-gen 5G product designs, autonomous vehicle, mobile products as well as high-performance chips for advanced driver assistance systems (ADAS).

We believe that ANSYS has significant growth opportunity from the rising complexity in product design owing to rapid adoption of IoT in the manufacturing industry. Moreover, growing demand for energy efficient products is also a key catalyst.

Perpetual License Decline Hurts Sales

ANSYS expects the transition from perpetual license contracts to longer-term, time-based licenses at some of the company’s largest customers (in mature markets like the U.S. and Japan) to impact software license and maintenance revenue growth at least in the near term.

For second-quarter fiscal 2017, net revenue is anticipated in the range of $254–$263 million. The Zacks Consensus Estimate is currently pegged at $259.87 million.

For 2017, ANSYS anticipates revenues of $1.030–$1.058 billion. The Zacks Consensus Estimate is currently pegged at $1.05 billion.

Moreover, weakness in Europe and adverse foreign currency exchange rates are other major concerns.

Zacks Rank & Key Picks

ANSYS carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same sector include Red Hat (NYSE:RHT) , Verint Systems (NASDAQ:VRNT) and Adobe Systems (NASDAQ:ADBE) . While Red Hat and Verint sport a Zacks Rank #1 (Strong Buy), Adobe carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Red Hat, Verint and Adobe is currently pegged at 14.90%, 8.50% and 16.60%, respectively.

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