Aspen Technology

AZPN : NASDAQ : US$35.18

BUY 
Target: US$42.00

COMPANY DESCRIPTION:

Aspen provides software and services to process-intensive industries such as oil & gas, petroleum, chemicals and pharmaceuticals. The company’s products aid in process design, production planning, economic evaluation and simulation across three core areas – engineering, plant operations and supply chain management.

All amounts in US$ unless otherwise noted.

QUITE OPTIMISTIC ABOUT THE LONG RUN FOR AZPN
Investment thesis
Aspen’s quarter was very solid, with modest upside across nearly every line item. We believe those who assert that this stock can’t outperform without revenue acceleration have wholly missed the point because we believe this firm has a franchise sufficient to deliver a multi-year increase in operating margins.
We can make the case that Aspen could drive operating margins into the high 40%’s over the next ten years. If so, AZPN is very likely to materially outperform the overall stock market. We are aggressive buyers of this stock today, tomorrow and next week. Reiterate BUY, increasing target to $42.
 A good start to F2014: modest upside across the board. LTCV grew 13.2% y-o-y (ahead of our 12.3% estimate) to $1.69B, annual spend of $346M (+11% y-o-y) was in-line with our estimate, and FCF of $24.8M ($0.26 per share) grew 49% y-o-y and was nicely ahead of our $22.5M estimate. For those who track revenue and non-GAAP EPS (both non-relevant metrics
during the firm’s model transition), AZPN beat by $1.6M and $0.04.
 Outlook:

Double digit LTCV growth, FCF conservatively reiterated. As expected following a FQ1 report, management reiterated full year targets on the metrics that matter (revenue and non-GAAP EPS ranges were nicely increased). We believe there is upside to the firm’s $160M F2014 FCF target and have set our estimate roughly $3M ahead of guidance.
 Valuation and price target

We are increasing our price target by $2 to $42, which is based on a 20x multiple applied to our F2015 FCF/share estimate of $1.97 plus approximately $3.00 per share in prospective

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