ANSYS: Near April 2020 Low Even With Ambitious New Mid-Term Targets

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

Summary

• Ansys shares have again fallen close to their April 2020 low, even after new ambitious mid-term targets were released on August 9.

• Management now expects Annual Contract Value growth to accelerate to 12% in 2022-25 and EBIT margin to stabilize.

• Ansys shares are now at 31.3x guided 2022 Non-GAAP EPS, and we believe the new mid-term targets are achievable.

• However, we believe shares are still too expensive once Share-Based Compensation costs are included and will de-rate further.

• With shares at $246.54, we expect a total return of 21% (6.0% annualized) by 2025 year-end, below our target. Avoid.

Introduction

We review our Hold rating on ANSYS, after management announced new medium-term targets in early August and shares again fell to levels near their April 2020 low.

We downgraded our rating on Ansys from Buy to Hold in May 2020, when the share price was $263.51. After a strong run, Ansys’ share price has fallen 42% from its 52-week high and is currently 9% lower than at our downgrade.

We…