Altair Engineering Inc. (ALTR - Free Report) is poised to gain from innovative product offerings, inorganic moves and ongoing strong momentum in software-related services. Shares of the company have gained 3.6% in the past year against the Zacks Engineering – R&D Services industry’s decline of more than 30%.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Altair Engineering are moving in the right direction. Also, earnings estimates for the to-be-reported quarter as well as 2018 have increased 11.1% and 3.2%, respectively, over the past 60 days.
This positive trend justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into other factors that make this stock a solid pick.
Strong Inorganic Moves Bode Well: Altair Engineering follows a systematic inorganic strategy for expansion and has wrapped up a wide array of acquisitions that contributed significantly to growth. The recent acquisitions of Datawatch, SIMSOLID (in October 2018) and FluiDyna GmbH (in May 2018) are classic examples. Datawatch is a data intelligence provider with market-leading enterprise data preparation, predictive analytics and visualization solutions.
SIMSOLID is a CAD software company engaged in developing simulation technology. The company believes that SIMSOLID is a revolutionary technological breakthrough, which will have a profound impact on product design and deliver meaningful additional revenues to Altair Engineering over the next three years. On the contrary, Germany-based FluiDyna GmbH is a renowned developer of NVIDIA CUDA and GPU-based Computational Fluid Dynamics and numerical simulation technologies. The company also acquired CA-based CANDI Controls, Inc. in April 2018.
Solid Growth Prospects: Ongoing strong momentum in its software revenues, coupled with the emerging benefits of scale and certain operating expenses, given the growth of the business, continue to drive growth. In the first nine months of 2018, the company’s revenues increased 15.5% from the same period of 2017. Meanwhile, during the same period, software momentum continued to exhibit strong growth, equaling 18% from the prior-year period. Again, adjusted EBITDA margin of 8.7% during the said period expanded 290 basis points from 5.8% in the year-ago period.
Altair Engineering has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2018 earnings of 32 cents per share, which are expected to grow 23.1% year over year. Moreover, its earnings are expected to increase 70.8% (higher than the industry average of 11.3%) on 13.1% sales growth in 2019.
Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
Positive Industry Trends: Positive fundamentals of the simulation market have been providing plenty of growth opportunities for Altair Engineering and peers. There has been a constant demand for simulation solutions, in order to drive efficiencies in the design and production process. This is leading to shorter design cycles and more innovations with reduced costs.
Altair Engineering is benefiting from these ongoing positive industry trends as well as its focus on R&D to optimize product design. The company has been generating higher software revenues on the back of product investments over the past few quarters along with witnessing positive trends in its primary end market (automotive). The company, which derives about 40% of its revenues from the automotive vertical, has been riding high on the rise of electric vehicles and the emerging frontier of autonomous driving.
VGM Score: Altair Engineering has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B, when combined with a Zacks Rank #1 or 2, make a solid investment choice.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include KBR, Inc. (KBR - Free Report) , Gates Industrial Corporation PLC (GTES - Free Report) and Great Lakes Dredge & Dock Corporation (GLDD - Free Report) . While KBR sports a Zacks Rank #1, Gates Industrial and Great Lakes carry a Zacks Rank #2.
KBR surpassed earnings estimates in three of the trailing four quarters, resulting in average positive surprise of 12.6%.
Gates Industrial and Great Lakes’ 2019 earnings are expected to grow 9.7% and 1,400%, respectively.
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