PTC (PTC): Industrial Automation

PTC has suffered from material mis-execution over the last 5 quarters. We think the current price is discounting a very conservative scenario due to fears of recession and extrapolation of what we think are short-term problems.

We think PTC and industrial automation names provide high quality cyclical exposure that may have some macro driven downside in the short term, but should provide attractive returns longer-term.

The secular drivers of revenue growth look to have very strong tailwinds:

• We are convinced of increased adoption of IoT/AR technologies as Industry has seen a decade of stagnant productivity and IoT is critical in industrial digitisation. 

• We like PTC’s current leadership position in IoT/AR and the possibility of increased market share.

• PTC’s 2018 partnerships are likely to boost growth, but take time to ramp up.

• FCF per share growth CAGR of >25% is possible, driven by secular trends in industrial IoT, augmented reality and the benefits of switching to subscription in PTC’s CAD and PLM businesses.

One note of near-term caution –we expect 2020 management guidance to cause a drop in street numbers. Potential Upside: $114 (+70%)Sensible Downside: $61 (-10%) 

Link to report