Ansys Posts Q2 Beat From Resurgence of SMB and Continued Enterprise Demand; Shares Overvalued

In wide-moat Ansys’ second quarter, both enterprise customers and small/midsize customers exceeded spending predictions, leading to a healthy non-GAAP EPS beat for the company compared with FactSet and our previous estimates. Relatedly, Ansys gave rosier guidance for the year, which we think it will be able to beat, given how strong the company’s metric of annualized contract value is trending. After accounting for this in our model, we increased Ansys’ long-term tax rate slightly based on our probability-weighted estimate for the U.S. corporate tax rate. Altogether, we are increasing our fair value estimate for the simulation software standard to $242 per share from $237. We view shares of Ansys as still significantly overvalued, trading near $365 per share. We find the market’s valuation of Ansys hard to understand, as our model already entails a healthy five-year revenue CAGR of 10% and stellar terminal operating margins at 46%. We continue to think that Ansys’ wide moat, and thus the confidence in its ability to have excess returns over invested capital, is likely leading to a market premium for the name.