Dassault Systèmes: Still Room on the Upside http://bit.ly/1RnZKnE
The French software developer has seen its shares rise some 40% this year. Despite choppy European stock markets, the shares could move higher.
Dassault Systèmes (ticker: DSY.France) is best known for developing 3D virtual-creation software that allows engineers to design, simulate, and optimize cars, planes, and industrial goods. For manufacturers, it’s a cost-effective way of launching products, often eliminating the need to develop prototypes that were once effective means for testing new designs under real-world conditions.
Greg Padilla, a principal and fund manager with Aristotle Capital Management, has owned the stock since 2014 and says it’s one of his fund’s top 10 holdings.
“Growth is hard to find right now, but there are still numerous opportunities in Europe, unique businesses,” he says. “Dassault Systèmes is a company that ticks a lot of the right boxes.”
In spite of the stock’s recently impressive performance, Padilla says the company’s potential still isn’t fully appreciated by investors. “It’s optically not a supercheap stock, but it’s a company that has a dominant market share, a strong balance sheet, and is making the transition from its core business into other areas,” he says.
DASSAULT’S SOFTWARE IS associated with highly durable projects, often with 20-to-30-year product cycles. In recent years, the company has been improving its offering in product life-cycle management, or PLM, which helps companies manage designs from conception through to development. And it has been exploring new sectors such as consumer packaging, retail, health care, and life sciences. This expansion has been assisted by a reorganization of Dassault’s sales operations following its 2010 acquisition of a PLM sales and client-support team from IBM, increasing its capacity for cross-selling.
Padilla is struck by the potential for the company’s Biovia life-sciences business, which for the first time can digitally mock up a cancer cell, and Enovia, which provides cloud-based software that allows designers to collaborate on projects. The strategy has created a business Padilla says is both resilient and has strong earnings visibility. The company aims to double earnings per share from 2014 to 2019.
Last week Dassault said third-quarter net profit jumped 48% to 105.5 million euros ($115.75 million) from the year earlier, lifted by a strong performance in Europe and the Americas. Earnings are being helped by the relative weakness of the euro against other currencies, with close to two-thirds of revenue generated outside the euro zone.
Goldman Sachs analyst Mohammed Moawalla rates Dassault Systèmes a Buy with an €85 price target and a return potential of 23%. He describes the company’s organic growth as “solid,” despite a slowdown in Asia caused by some deal slippage in China. He estimates earnings per share will grow at a compound annual rate of 20% in the next five years, and puts Dassault’s 2015 price/earnings ratio at 31.6, falling to 25.1 next year and 21.2 in 2017. Dassault Systèmes’ shares closed Friday at €71.84.