Baird: Aspen Technology Has 'Compelling' Risk-Reward

Software provider Aspen Technology, Inc. AZPN is seeing improvement in end markets; new products that contribute to additional growth; and addressing token overhang, according to Baird. 

The Analyst

Analyst Rob Oliver upgraded Aspen shares from Neutral to Buy and increased the price target from $77 to $90 and said the stock has a "compelling" risk-reward profile over the next one to two years. In a "blue sky" scenario, the analyst sees the shares rising to $95-$100 within 12-24 months.

The Thesis

Aspen is likely to return to high single- or low double-digit annual spending growth amid stabilization of its core end markets such as upstream and downstream, oil and gas, chemicals and engineering and construction, Oliver said in a Monday note.

The asset performance business is gaining traction earlier than expected and is "a potential long-term kicker and third leg of growth" that complements the legacy MSC and engineering suites, Oliver said. 

Two of the three largest deals signed in the second quarter were APM-only deals, with APM accounting for 24-25 percent of the total pipeline, up from 10 percent last year, the analyst said. 

"Importantly, the company continues to make tuck-in acquisitions and sign go-to-market deals in the APM arena." 

Baird sees the following data points and derivative signs as indications that IoT spend could inflect this year, driving upside to Aspen's consensus annual spend estimates: 

• A strong ThingWorx business recently reported by early IoT leader PTC Inc. PTC
• Strong fiscal 2018 guidance issued by ANSYS, Inc. ANSS, which leads in simulation.
• The year seems to mark an inflection point in "Industry 4.0" spending. 

The Price Action

Aspen's shares have gained about 23 percent over the past year.

Aspen shares were adding 3.34 percent to $81.88 at the time of publication Monday. 

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