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Bull of the Day: Aspen Technologies (AZPN)

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Based in Bedford, MA, Aspen Technologies (AZPN - Free Report) is a company that provides process optimization software solutions. One of its primary products, aspenONE, is a software that has been developed specifically for companies in the broad process industries like energy, chemicals, engineering, and construction.

AspenTech’s performance in its recent fourth quarter was strong. Earnings of 59 cents per share beat the Zacks Consensus and also surpassed the higher end of the company’s management’s guided range of 53-55 cents per share. Revenues came in line with our consensus, also came ahead of the higher end of management’s projected range.

Thanks to an increase in subscription and software revenues—up 3.5% year-over-year—total revenues inched up around 2% year-over-year; impressive performance of its Asset Performance Management (APM) suite and SMB business also drove growth.

Additionally, annual spend, which is the annualized value of all term license and maintenance contracts at the end of Q4, was roughly $489 million, up 6.4% from the prior year period.

AspenTech generated $79.1 million cash from operations in the quarter compared with $73.1 million reported in the previous quarter. Free cash flow came in at $79.5 million compared with $78.1 million at the end of the previous quarter.

In its Q4 earnings release, Antoni Pietri, President and CEO, said “AspenTech ended fiscal 2018 with a solid performance across all areas of the business.  Our results reflect encouraging signs of improvement among Engineering & Construction customers, as well as continued strength from our owner-operator customers.”

“We are pleased with the significant progress made with APM in its first year in the market and believe we are well positioned to generate meaningful growth from this market opportunity in fiscal 2019 and beyond,” he continued.

Shares of AZPN have been on a nice run so far in 2018, and are up over 93%. And, the stock has gained more than 81% over the past one-year period. In comparison, the S&P 500 is up around 8.6% and 16.7%, respectively. Its industry, Computer-Software, has been a solid performer as well, sitting in the top 25% out of all industries ranked by Zacks.

Estimates have been rising lately too, pushing the stock towards a Zacks Rank #1 (Strong Buy).

For the current fiscal year, AspenTech has seen five upwards revisions, with one downward revision, in the last 60 days. Earnings could grow over 36% this year.

The Zacks Consensus Estimate for 2019 has increased 40 cents over the last two months, now sitting at $3.15 per share. 2020 looks pretty strong too, and earnings are expected to grow 12.7%; next year’s consensus estimate has increased from $3.06 to $3.55 in the same time period.

Bottom Line

Looking ahead, AspenTech forecasts total revenues between $555 million and $585 million, including $398 million worth renewal contracts for fiscal 2019. 

Non-GAAP operating income and non-GAAP earnings are projected in the range $257-$283 million and $3.06-$3.34 per share, respectively.

The company’s APM suite is projected to contribute 1.5-2.5% growth to the anticipated annual spend increase of 7-9%, whereas Engineering and MSC suites are projected to contribute 5.5-7%.

If you’re an investor looking for a computer software stock to add to your portfolio, make sure to keep AZPN on your shortlist.

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