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ANSYS (ANSS) Looks Promising on Upbeat Q4: Time to Buy?

Zacks Equity Research

ANSYS Inc. ANSS shares have been rallying since fourth-quarter 2018 earnings release on Feb 27, 2019. In fact, shares of the company have gained 26.2% in the year-to-date period, has outperforming the industry’s growth of 16.5%. Its price performance is driven by an impressive earnings surprise history. The company surpassed earnings estimates in three of the trailing four quarters, recording average beat of 22.6%.

Meanwhile, the consensus estimates for the company’s 2019 and 2020 earnings have also been revised upward by 5.5% and 7.2%, respectively, over the past 30 days, reflecting optimism in the stock’s earnings prospects.

Let’s delve deeper into the other factors that make this Zacks Rank #2 (Buy) stock a lucrative pick. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What Makes ANSYS a Solid Pick?

Robust Performance: ANSYS delivered fourth-quarter 2018 non-GAAP earnings of $2.13 per share (per ASC 606), surpassing the Zacks Consensus Estimate of $1.49. The figure also fared better than higher end of management’s guided range of $1.39 to $1.55 per share.

Earnings surged 30% on a year-over-year basis to $1.39 per share, according to ASC 605 standard.

Non-GAAP revenues of almost $418 million (per ASC 606) comfortably surpassed the Zacks Consensus Estimate of $362 million. Further, the figure came above the higher end of management’s guided range of $352 million to $372 million.

Non-GAAP revenues increased 12% from the year-ago quarter to $340.1 million, according to ASC 605 standard. Year-over-year revenue growth was driven by double-digit growth across lease, maintenance and service revenues.

Robust investments in autonomous vehicles, electrification, smart, connected solutions and 5G acted as primary catalyst. Customers’ focus on utilizing simulation across repair, maintenance and other overhaul projects was a positive. Budgetary increase in allocation for defense spending across Europe and the United States favored growth in aerospace and defense domains.

Solid Growth Prospects: NetApp has solid growth prospects, as is apparent from the Zacks Consensus Estimate for fiscal 2020 earnings of $6.44, which calls for 11.7% year-over-year growth..

Meanwhile, the company’s revenues are anticipated to increase by 10.8% in fiscal 2019. Moreover, revenues are expected to rise 10.2% in fiscal 2020. Overall, the company seems a great pick in terms of growth investment, supported by a Growth Score of A.

Solid VGM Score: The company has an impressive VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 make solid investment choices.

Encouraging Outlook:Per ASC 606, ANSYS expects non-GAAP earnings in the range of 98 cents to $1.11 per share for first-quarter 2019. TheZacks Consensus Estimate is pegged at $1.09 cents.

Non-GAAP revenues are anticipated in the range of $290 million to $310 million. The Zacks Consensus Estimate is pegged at $305.9 million.

For 2019, ANSYS provided outlook. The company anticipates non-GAAP revenues of $1.410-$1.470. Non-GAAP earnings are envisioned in the range of $5.55-$6.00 per share.

The Zacks Consensus Estimate for revenues and earnings are pegged at $1.43 billion and $5.77 per share, respectively.

Other Growth Drivers: In the reported quarter, ANSYS unveiled the latest Pervasive Engineering Simulation offering, ANSYS 2019 R1, to accelerate problem-solving capabilities across its comprehensive portfolio. It is anticipated to enhance the company’s go-to-market strategy.

The company’s Startup Program is benefiting more than 500 young companies globally by providing them with ANSYS solutions to build next generation product and services, which is a positive.

ANSYS’ success with RedHawk-SC is evident from its robust adoption by hardware startups. Notably, the company is focused on chip development for artificial intelligence. Further, its RedHawk customers have started deploying the same in their complex products and design. This is expected to benefit the company in the to-be-reported quarter.

Moreover, ANSYS acquired France-based OPTIS. With this buyout, ANSYS is set to introduce ANSYS VRXPERIENCE, which will simulate the vehicle’s reaction to critical situation. This is anticipated to bolster customer experience.

The buyout of 3DSIM, a leading additive manufacturing simulation technology provider, will help ANSYS to foray into 3D metal printing and access the industry's only complete additive manufacturing simulation workflow. This will enhance ANSYS’s presence in the competitive simulations market.

The company also acquired Granta Design Limited (Granta Design) and Helic, Inc. (Helic) for a combined consideration of $261.5 million

Other Stocks to Consider

Other top-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS, Synopsys, Inc. SNPS and Symantec Corporation SYMC, currently sporting a Zacks Rank #1.

Cadence Design, Synopsys and Symantec have long-term earnings growth rates of 12%, 10% and 7.9%, respectively.

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