Jefferies & Co. upgraded its rating on shares of Parametric Technology (NASDAQ: PMTC) to buy from hold and increased its price target to $28 from $25.
We see a number of positive product catalysts in the next 12 months, our channel survey work continues to improve, the company is exposed to recovering industries, the MKS Inc. acquisition will be accretive in fiscal 2012 and momentum in large strategic deals is not something to ignore, said Ross MacMillan, an analyst at Jefferies.
MacMillan said the most recent survey work shows that partners are seeing improving demand; the channel now expects to grow low teens for the March quarter and for fiscal 2011, believes the Windchill 10 and Creo product releases will have a positive impact on demand, and that PMTC remains a clear share gainer in product lifecycle management (PLM) market.
Parametric Technology has a number of new products coming to market this year and next. MacMillan expects these new products can support the company’s market leadership in PLM (Windchill 10), stabilize and potentially invigorate growth in CAD (Creo) and potentially provide a new incremental driver of growth (Arbortext SIS).
Parametric Technology has long viewed application lifecycle management (ALM) as an attractive complement to PLM so the acquisition doesn't surprise us. We expect Parametric has a good opportunity to cross-sell the acquired products and drive faster higher growth at MKS. Valuation looks ok if Parametric can grow the business at or above the corporate average, said MacMillan.
MacMillan said Parametric's industrial customers are seeing strong demand and are spending on technology to drive greater control over global engineering process.
She said there is a refreshed management team (since October 2010) with long-time Parametric veteran Jim Heppelmann as CEO and Jeff Glidden (ex CFO or RSA Security) bringing fresh perspective. The large strategic deals that the company has been signing cannot be going unnoticed by other strategic vendors.
The brokerage raised its 2011 EPS estimate for Parametric Technology to $1.23 from $1.20 and its 2012 estimate to $1.53 from $1.44. The brokerage now modeled 12 percent revenue growth in fiscal 2011 and 13 percent in fiscal 2012, and operating margin of 18 percent in 2011 and 19 percent in 2012.
PMTC has been focused on winning large deals at some of the world’s largest discrete manufacturing companies for a number of years. We note that PMTC has had a number of competitive wins over the last 2 years including a number against Dassault Systemes (OTC: DASTY.PK) (Adidas, Cummins and Volvo Group), Siemens (NYSE: SI) (Raytheon, Otis Elevator and GE Healthcare), SAP (Lenovo, Lennox and Schaeffler), Oracle Corp. (NASDAQ: ORCL) (Nvidia and Quanta) as well as others, said MacMillan.
Parametric Technology stock closed Thursday's regular trading down 1 percent at $22.74 on the NASDAQ Stock Market.