Software Stocks

Ansys Inc. Analysis – Initial Coverage $ANSS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Ansys Inc. (ANSS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ANSYS, Inc. (ANSYS) develops and markets engineering simulation software and services. The Company offers the suite to engineers, designers, researchers and students, and for industries and academia, including aerospace, automotive, manufacturing, electronics, biomedical, energy and defense. The Company’s product portfolio consists of ANSYS Workbench, Structures, Fluids, Electronics, Systems and Academic. ANSYS Workbench is the framework upon which the Company’s suite of engineering simulation technologies is built. The structures product suite offers simulation tools for product design and optimization. The fluids product suite enables modeling of fluid flow. The Company’s system simulation capability is to design automated products. The academic product suite provides a portfolio of academic products-based on usage tiers, such as associate, research and teaching.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ANSS – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 2.67
MG Growth Estimate 10.50%
MG Value $78.61
Opinion Overvalued
MG Value based on 3% Growth $38.65
MG Value based on 0% Growth $22.66
Market Implied Growth Rate 13.72%
Current Price $95.81
% of Intrinsic Value 121.87%

Ansys Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.57 in 2011 to an estimated $2.67 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 13.72% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Ansys Inc. (ANSS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ANSS charts August 2015

Net Current Asset Value (NCAV) $6.60
PEmg 35.95
Current Ratio 2.58
PB Ratio 3.92
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $1,110,355,000
Total Current Liabilities $430,310,000
Long-Term Debt $0
Total Assets $2,746,030,000
Intangible Assets $1,544,970,000
Total Liabilities $504,725,000
Shares Outstanding (Diluted Average) 91,726,000

Earnings Per Share History

Next Fiscal Year Estimate $3.05
Dec14 $2.70
Dec13 $2.58
Dec12 $2.14
Dec11 $1.91
Dec10 $1.64
Dec09 $1.27
Dec08 $1.29
Dec07 $1.02
Dec06 $0.19
Dec05 $0.65
Dec04 $0.53
Dec03 $0.34
Dec02 $0.31
Dec01 $0.22
Dec00 $0.25
Dec99 $0.22
Dec98 $0.17
Dec97 $0.11
Dec96 $0.02
Dec95 $0.00

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.67
Dec14 $2.38
Dec13 $2.12
Dec12 $1.81
Dec11 $1.57
Dec10 $1.29
Dec09 $1.04
Dec08 $0.86
Dec07 $0.61
Dec06 $0.41
Dec05 $0.48
Dec04 $0.37
Dec03 $0.29
Dec02 $0.25
Dec01 $0.22
Dec00 $0.19
Dec99 $0.14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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