Where Will Ansys Stock Be In 1 Year?

One of the intriguing applications of AI is to create highly realistic digital models of prototypes or parts. That’s exactly the niche Ansys, Inc. (NASDAQ: ANSS) has filled for its industrial clients. The company’s engineering simulation software integrates with AutoCAD to give designers a much more interactive model before a product launches.

However, Ansys software has much broader applications than just in the industrial world. The healthcare, defense, and energy industries have begun to recognize the technology’s potential, which in turn have caused the stock to double from 2019 to 2021. ANSS share price traded above $400 per share at the end of that year.

Since then, the stock has succumbed to gravity but remains elevated in the mid-$300 range. A big part of its recovery was the stunning announcement that Ansys was being acquired by its former rival, Synopsys. That news was dampened by concerns about a slowdown in revenue from China.

So where will Ansys stock be in a year?

Why Did Ansys Stock Go Down?

The China news certainly impacted the stock in November after the company reported its 3rd quarter of 2023 earnings. Revenue of $458.8 million came in 3% below that of the same quarter the year prior, and it also missed expectations by 1.7%.

The slowdown in the top line was attributed to an unforeseen $20 million decline in revenue from China. The U.S. government put restrictions in place on the type of technology that can be exported to China, and that unfortunately included the company’s simulation software.

Though Ansys has already made adjustments, the revenue slump is expected to continue to affect the company into the 4th quarter of 2023 and beyond. Ansys lowered its estimates for that quarter by 3.5%.

Net income was heavily impacted as well, down 42% to $55.5 million compared to 2022. Diluted earnings per share were reported at $0.64, which beat expectations by around 11%.

Overall, it was a dismal 3rd quarter for the company and, after the earnings release in November, ANSS share price fell by over 10%.

Will Ansys Stock Bounce Back?

In December, however, there came reports that Synoypsis was in talks with Ansys, and that an acquisition might be imminent. Those talks were consummated in January when Synopsys announced it would acquire Ansys for $35 billion.

ANSS bounced back from below $280 to hit a 52-week high of $364.31 in the last days of 2023 subsequent to the news.

The stock has dropped a bit since then, down 6.5% year-to-date as the enthusiasm has cooled. The acquisition won’t be finalized until the first half of 2025. It is still a major purchase for Synopsys, which makes electronic design automation (EDA) software for semiconductors that are used to power AI.

EDA software may not seem an obvious fit with Ansys’s product, which is primarily used in mechanical engineering applications but the simulation software has already been successfully adopted in other industries, and Synopsys is making a substantial gamble that the combination of the two companies will make it a leading AI innovator.

The acquisition may pay off in the long run, however Synopsys is taking on a considerable amount of debt to make the deal happen. The company could be going from just $18 million in debt (as of last quarter) to potentially $16 billion in leverage by the time the deal goes through. And there still could be pushback from legislators that could delay the acquisition.

Analysts View

Because of that uncertainty, analysts have shied away from getting too enthusiastic about Ansys. Of the 17 analysts who have issued ratings on the stock, 11 consider it a Hold. 

There are four Buy ratings on the stock, and the highest forecast predicts that ANSS will jump 18.8% to $392 over the next year.

There are two Sell ratings on the stock, and the lowest forecast sees ANSS dropping by 5.6% to $311.50 per share over the next 12 months.

Is Ansys Stock Undervalued?

Ansys struggled to meet revenue expectations in the 3rd quarter and no material change in revenues is expected in the upcoming quarter.

Ansys has a price-to-earnings (P/E) ratio of 59.6x at its current price, which is concerning, although Synopsys has a P/E value of around 71.

For what it’s worth, the main competitor to the combined company will be Cadence Design Systems, which has a P/E of 76x.

As with many tech companies, investors are not as concerned with today’s valuation as they are with tomorrow’s possibilities.

Where Will Ansys Stock Be In 1 Year?

According to the consensus estimate of 13 analysts, Ansys stock will rise to as high as $347.37 per share within 1 year.

When it comes to Ansys, there are plenty of possibilities, including that the Synopsys deal doesn’t go through for any number of reasons. But if it does, there is the possibility that the company becomes an integral part of semiconductor design software ecosystems, which would make it a powerful player in the most important industry to arise in decades.

In the short term, however, sluggish revenue from China is likely to impact the company’s revenue and its stock price. The initial excitement from the Synopsys acquisition announcement wore off fast and there is a long path ahead before the deal is fully consummated.

A year from now, ANSS could still be in a holding pattern, which falls in line with the analysts’ current prediction. And even if the deal goes through, a substantial amount of time may be needed before Synopsys is able to work its way out from under the dark cloud of debt it looks set to undertake.

With all that said, if the long-term bet plays out the way Synopsys and Ansys believe it will, the company could be a force to reckon with as artificial intelligence applications are further integrated into its solutions.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.