Intrinsic value of Aspen Technology - AZPN

Previous Close

$58.38

  Intrinsic Value

$29.25

stock screener

  Rating & Target

sell

-50%

  Value-price divergence*

-115%

Previous close

$58.38

 
Intrinsic value

$29.25

 
Up/down potential

-50%

 
Rating

sell

 
Value-price divergence*

-115%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AZPN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.27
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  472
  481
  493
  505
  519
  535
  552
  571
  592
  614
  637
  662
  689
  718
  748
  780
  815
  851
  889
  930
  972
  1,017
  1,065
  1,115
  1,168
  1,223
  1,282
  1,344
  1,408
  1,477
  1,548
Variable operating expenses, $m
 
  57
  59
  60
  62
  63
  65
  67
  70
  72
  75
  76
  79
  82
  85
  89
  93
  97
  101
  106
  111
  116
  122
  127
  133
  140
  146
  153
  161
  169
  177
Fixed operating expenses, $m
 
  219
  225
  230
  236
  242
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  318
  326
  334
  342
  351
  359
  368
  378
  387
  397
  407
  417
  427
  438
  449
Total operating expenses, $m
  261
  276
  284
  290
  298
  305
  313
  321
  331
  339
  349
  357
  367
  377
  387
  399
  411
  423
  435
  448
  462
  475
  490
  505
  520
  537
  553
  570
  588
  607
  626
Operating income, $m
  211
  205
  209
  215
  222
  230
  239
  249
  261
  274
  288
  306
  323
  341
  360
  381
  404
  428
  454
  481
  511
  542
  575
  610
  647
  687
  729
  773
  820
  870
  923
EBITDA, $m
  217
  209
  214
  219
  226
  234
  244
  254
  266
  279
  293
  309
  326
  344
  364
  385
  407
  432
  458
  485
  515
  546
  579
  615
  652
  692
  734
  779
  826
  876
  929
Interest expense (income), $m
  1
  5
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  8
  9
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  24
  25
  27
  29
Earnings before tax, $m
  211
  200
  208
  213
  220
  228
  236
  246
  257
  270
  283
  300
  317
  334
  353
  373
  395
  418
  442
  469
  497
  527
  559
  593
  629
  667
  707
  750
  795
  843
  894
Tax expense, $m
  71
  54
  56
  58
  59
  61
  64
  66
  70
  73
  77
  81
  85
  90
  95
  101
  107
  113
  119
  127
  134
  142
  151
  160
  170
  180
  191
  202
  215
  228
  241
Net income, $m
  140
  146
  152
  156
  160
  166
  173
  180
  188
  197
  207
  219
  231
  244
  257
  272
  288
  305
  323
  342
  363
  385
  408
  433
  459
  487
  516
  547
  580
  615
  652

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  321
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  420
  428
  438
  449
  462
  476
  491
  508
  526
  546
  567
  589
  613
  639
  666
  694
  725
  757
  791
  827
  865
  905
  947
  992
  1,039
  1,088
  1,140
  1,195
  1,253
  1,314
  1,377
Adjusted assets (=assets-cash), $m
  99
  428
  438
  449
  462
  476
  491
  508
  526
  546
  567
  589
  613
  639
  666
  694
  725
  757
  791
  827
  865
  905
  947
  992
  1,039
  1,088
  1,140
  1,195
  1,253
  1,314
  1,377
Revenue / Adjusted assets
  4.768
  1.124
  1.126
  1.125
  1.123
  1.124
  1.124
  1.124
  1.125
  1.125
  1.123
  1.124
  1.124
  1.124
  1.123
  1.124
  1.124
  1.124
  1.124
  1.125
  1.124
  1.124
  1.125
  1.124
  1.124
  1.124
  1.125
  1.125
  1.124
  1.124
  1.124
Average production assets, $m
  20
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
Working capital, $m
  -72
  -48
  -49
  -51
  -52
  -54
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -117
  -122
  -128
  -134
  -141
  -148
  -155
Total debt, $m
  140
  30
  39
  49
  61
  73
  87
  102
  119
  136
  155
  175
  197
  220
  244
  270
  297
  326
  357
  389
  424
  460
  498
  538
  580
  625
  671
  721
  773
  827
  885
Total liabilities, $m
  495
  385
  394
  404
  416
  428
  442
  457
  474
  491
  510
  530
  552
  575
  599
  625
  652
  681
  712
  744
  779
  815
  853
  893
  935
  980
  1,026
  1,076
  1,128
  1,182
  1,240
Total equity, $m
  -75
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
Total liabilities and equity, $m
  420
  428
  438
  449
  462
  476
  491
  508
  527
  546
  567
  589
  613
  639
  666
  694
  724
  757
  791
  827
  866
  906
  948
  992
  1,039
  1,089
  1,140
  1,196
  1,253
  1,313
  1,378
Debt-to-equity ratio
  -1.867
  0.710
  0.900
  1.100
  1.320
  1.540
  1.780
  2.010
  2.260
  2.500
  2.740
  2.970
  3.210
  3.440
  3.670
  3.890
  4.100
  4.310
  4.510
  4.710
  4.900
  5.080
  5.250
  5.420
  5.580
  5.740
  5.890
  6.030
  6.170
  6.300
  6.420
Adjusted equity ratio
  -2.586
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  140
  146
  152
  156
  160
  166
  173
  180
  188
  197
  207
  219
  231
  244
  257
  272
  288
  305
  323
  342
  363
  385
  408
  433
  459
  487
  516
  547
  580
  615
  652
Depreciation, amort., depletion, $m
  6
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Funds from operations, $m
  147
  150
  156
  160
  165
  171
  177
  184
  193
  202
  212
  222
  234
  247
  261
  275
  291
  309
  327
  346
  367
  389
  412
  437
  464
  492
  522
  553
  586
  622
  659
Change in working capital, $m
  -7
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  154
  151
  157
  161
  166
  172
  179
  186
  195
  204
  214
  225
  237
  250
  264
  279
  295
  312
  331
  350
  371
  393
  417
  442
  469
  497
  527
  559
  593
  628
  666
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
New CAPEX, $m
  -4
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  47
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
Free cash flow, $m
  201
  149
  155
  159
  164
  169
  176
  183
  192
  201
  211
  221
  233
  246
  259
  274
  290
  307
  325
  345
  365
  388
  411
  436
  462
  490
  520
  551
  584
  620
  657
Issuance/(repayment) of debt, $m
  140
  -110
  9
  10
  11
  13
  14
  15
  16
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  49
  52
  55
  57
Issuance/(repurchase) of shares, $m
  -175
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -39
  -110
  9
  10
  11
  13
  14
  15
  16
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  49
  52
  55
  57
Total cash flow (excl. dividends), $m
  162
  39
  164
  169
  175
  182
  190
  198
  208
  218
  229
  241
  254
  268
  284
  300
  318
  336
  356
  377
  400
  424
  449
  476
  504
  535
  567
  601
  636
  674
  714
Retained Cash Flow (-), $m
  26
  -118
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -78
  163
  168
  174
  181
  188
  197
  206
  216
  227
  239
  252
  266
  281
  297
  314
  333
  353
  374
  396
  420
  445
  471
  500
  530
  561
  595
  631
  668
  708
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -75
  149
  146
  143
  140
  137
  133
  129
  124
  119
  113
  107
  101
  94
  87
  80
  72
  65
  58
  50
  43
  37
  31
  25
  21
  16
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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  100.0
  100.0

Aspen Technology, Inc., together with its subsidiaries, provides software and services to the process industries in the United States, Europe, and internationally. It operates through two segments, Subscription and Software, and Services. The company licenses integrated process optimization software solutions and associated support services designed to manage and optimize plant and process design, operational performance, and supply chain planning. Its software suites include aspenONE Engineering, and aspenONE Manufacturing and Supply Chain, which are integrated applications that allow end users to design process manufacturing environments, forecast and simulate potential actions, monitor operational performance, and manage planning and scheduling activities, as well as collaborate across these functions and activities. The company also provides software maintenance and support, professional, and training services. Its customers consist of companies, which are engaged in process industries, such as energy, chemicals, engineering, and construction, as well as consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals, and biofuels. Aspen Technology, Inc. was founded in 1981 and is headquartered in Bedford, Massachusetts.

FINANCIAL RATIOS  of  Aspen Technology (AZPN)

Valuation Ratios
P/E Ratio 33.4
Price to Sales 9.9
Price to Book -62.4
Price to Tangible Book
Price to Cash Flow 30.4
Price to Free Cash Flow 31.2
Growth Rates
Sales Growth Rate 7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -10.6%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity -186.7%
Interest Coverage 212
Management Effectiveness
Return On Assets 38.3%
Ret/ On Assets - 3 Yr. Avg. 30.9%
Return On Total Capital 1750%
Ret/ On T. Cap. - 3 Yr. Avg. 838.9%
Return On Equity -225.8%
Return On Equity - 3 Yr. Avg. 180.3%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 89.8%
Gross Margin - 3 Yr. Avg. 88.5%
EBITDA Margin 46.2%
EBITDA Margin - 3 Yr. Avg. 40.8%
Operating Margin 44.7%
Oper. Margin - 3 Yr. Avg. 39.5%
Pre-Tax Margin 44.7%
Pre-Tax Margin - 3 Yr. Avg. 39.5%
Net Profit Margin 29.7%
Net Profit Margin - 3 Yr. Avg. 26.2%
Effective Tax Rate 33.6%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 0%

AZPN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AZPN stock intrinsic value calculation we used $472 million for the last fiscal year's total revenue generated by Aspen Technology. The default revenue input number comes from 2016 income statement of Aspen Technology. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AZPN stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AZPN is calculated based on our internal credit rating of Aspen Technology, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Aspen Technology.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AZPN stock the variable cost ratio is equal to 11.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $214 million in the base year in the intrinsic value calculation for AZPN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Aspen Technology.

Corporate tax rate of 27% is the nominal tax rate for Aspen Technology. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AZPN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AZPN are equal to 4.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Aspen Technology operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AZPN is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-75 million for Aspen Technology - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 75.004 million for Aspen Technology is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Aspen Technology at the current share price and the inputted number of shares is $4.4 billion.

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COMPANY NEWS

▶ Aspen Technology tops Street 4Q forecasts   [Aug-10-17 09:25PM  Associated Press]
▶ Aspen Technology to Host Investor Day 2017   [May-25-17 08:30AM  Business Wire]
▶ Aspen Technology posts 3Q profit   [May-02-17 04:42PM  Associated Press]
▶ New Strong Buy Stocks for February 23rd   [Feb-23-17 07:04AM  Zacks]
▶ Aspen Technology posts 2Q profit   [Jan-26-17 04:34PM  Associated Press]
▶ Is Aspen Technology, Inc. (AZPN) Going to Burn These Hedge Funds?   [Dec-08-16 09:29AM  at Insider Monkey]
▶ aspenONE┬« Version 9.1 Software Released   [09:41AM  Business Wire]
▶ Sudden Surge in Crane Co. (CR) Ownership Among Hedge Funds   [Nov-27-16 06:04PM  at Insider Monkey]
▶ AspenTech Acquires Mtell   [04:02PM  Business Wire]
Stock chart of AZPN Financial statements of AZPN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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