Altair Engineering Inc. ALTR has been gaining investors’ faith on ongoing momentum in software-related services and inorganic moves. Year to date, the stock has rallied 50.9% compared with the industry’s 26.6% growth. Also, the company has outperformed the S&P 500’s 17.2% rise in the said period. The price performance is backed by Altair’s impressive earnings surprise history. Notably, the company’s earnings surpassed analysts’ expectations in five of the trailing six quarters.
Earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Altair are moving in the right direction. Also, earnings estimates for the to-be-reported quarter and full-year 2019 have increased 14.3% and 16.7%, respectively, over the past 60 days.
This positive trend justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Working in Favor of the Stock?
Growth Prospects Solid: Ongoing momentum in its software revenues, and the emerging benefits of scale and certain operating expenses, given business improvement, continue to drive growth. The company’s total first-quarter revenues increased 13% from a year ago, powered by software product growth of 15%. Driven by software product momentum, billings grew almost 23% from the year-ago period. Regionally, APAC and Europe continue to achieve exceptional growth. The company expects growing momentum in the Americas, owing to focus on hiring, training and investment, to further build out direct and indirect sales and marketing operation in this region. It continues to generate a huge percentage of new revenues from the core business of computer-aided engineering software from existing customers.
Altair Engineering has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of 63 cents per share, which indicates 53.7% year-over-year growth. Moreover, its revenues are expected to increase 23.8% from the prior-year quarter.
Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
Strong Inorganic Moves: Altair follows a systematic inorganic strategy for expansion and has wrapped up a wide array of acquisitions that contributed significantly to growth. The recent acquisitions of Datawatch, SIMSOLID (in October 2018) and FluiDyna GmbH (in May 2018) are classic examples. Datawatch is a data intelligence provider with market-leading enterprise data preparation, predictive analytics and visualization solutions.
SIMSOLID is a CAD software company engaged in developing simulation technology. The company believes that SIMSOLID is a revolutionary technological breakthrough, which will have a profound impact on product design and deliver meaningful additional revenues to Altair over the next three years. Conversely, Germany-based FluiDyna GmbH is a renowned developer of NVIDIA CUDA, and GPU-based Computational Fluid Dynamics and numerical simulation technologies. The company also acquired CA-based CANDI Controls, Inc. in April 2018.
Positive Industry Trends: Positive fundamentals of the simulation market have been providing plenty of growth opportunities for Altair and its peers. There has been a constant demand for simulation solutions in order to drive efficiencies in the design and production process. This is leading to shorter design cycles and more innovations, given reduced costs.
Altair is benefiting from these ongoing positive industry trends and its focus on R&D to optimize product design. The company has been generating higher software revenues on the back of product investments over the last few quarters and witnessing positive trends in its primary end market (automotive). The company, which derives about 40% of total revenues from the automotive vertical, has been riding high on the rise of electric vehicles and the emerging frontier of autonomous driving.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include KBR, Inc. KBR, Jacobs Engineering Group Inc. JEC and Quanta Services, Inc. PWR, each carrying a Zacks Rank #2 (Buy).
KBR surpassed earnings estimates in all the trailing four quarters, with the average being 8.9%.
Jacobs has a three-five year expected EPS growth rate of 12%.
Quanta Services’ earnings for the current year are expected to increase 29.5%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Jacobs Engineering Group Inc. (JEC) : Free Stock Analysis Report
Quanta Services, Inc. (PWR) : Free Stock Analysis Report
KBR, Inc. (KBR) : Free Stock Analysis Report
Altair Engineering Inc. (ALTR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research