ANSYS: 40% Down From Peak But Still Too Expensive

(Preview) Company Update (ANSS US) (Neutral)

Summary

• ANSYS shares have now fallen by 40% below their peak in December 2021, but we believe they are still too expensive.

• With shares at $246.54, we expect a total return of just 4% (1.0% annualized) by 2025 year-end, mostly due to the P/E falling.

• We expect Net Income to grow at 10% or less annually and for the share count to continue growing, consistent with ANSYS' record.

• ANSYS' cash conversion is poor due to the size of its share-based compensation costs that are excluded from GAAP EPS.

• ANSYS shares are currently trading at 32x guided 2022 Non-GAAP EPS, but we believe a multiple of 25x is more appropriate. Avoid.

Introduction

We review our Hold rating on ANSYS, Inc. Since we last reiterated our rating in February, ANSYS shares have fallen by a further 20%, and are now 40% below their December 2021 peak.

We downgraded our rating on ANSYS from Buy to Hold in May 2020, when the share price was $263.51. After more than two years, the share price is now 6% lower.

In the last few months, ANSYS…