April Webinar RegistrationApril Webinar Registration


AspenTech Prospers Amid Emerson Deal, Liquefied Natural Gas Demand

With shares up more than 50% this year, Aspen Technology (AZPN) — known as AspenTech — stands out amid the carnage in software growth stocks. Due to a number of varied customers in the energy industry, higher oil prices and Europe's need for new sources of liquefied natural gas, AZPN stock has surged.

X

Founded in 1981, AspenTech's software enables engineering, procurement and construction people in the energy and chemical industries to design facilities and optimize their maintenance and operations.

Industrial gear maker Emerson Electric (EMR) agreed to buy a majority 55% stake in Aspen for $6 billion in October 2021. The Emerson transaction closed in mid-May. Meanwhile, Emerson turned over two of its industrial software businesses to AspenTech as part of the deal.

With Emerson as a sales channel partner, Bedford, Mass.-based AspenTech expects to make gains in the pharmaceutical industry as well as in China.

When announcing their deal, Emerson and AspenTech told Wall Street the combined company would likely make more acquisitions. So in July, AspenTech agreed to buy Australian-based mining industry software maker Micromine for $623 million. Here's a look at Micromine's business.

Big AZPN Stock Acquisition Plans?

"When I first met Lal Karsanbhai, the CEO of Emerson, very quickly we both realized that our vision for the new AspenTech was very aligned around really creating an industrial software powerhouse," AspenTech Chief Executive Antonio Pietri said at a recent Piper Sandler financial conference.

Aspen"Now the company has scale," Pietri went on to say. "We have a partner in Emerson that will allow us to be more acquisitive at bigger scale if necessary."

But amid the deal-making, one challenge for investors is getting a fix on AspenTech revenue growth estimates.

AspenTech's fiscal year ends June 30. Prior to the Emerson deal, AspenTech's revenue rose 18.5% in fiscal 2021, dipped 1% in fiscal 2020, rose 15% in fiscal 2019, and edged up 3.4% in fiscal 2018.

Analysts polled by FactSet estimate fiscal 2023 inorganic growth of 58% to $1.163 billion, due to the Emerson and Micromine transactions. Further, for fiscal 2024 analysts predict revenue growth of 10% to $1.276 billion.

Prior to the Micromine acquisition, Piper Sandler's Clarke Jeffries said in a note to clients: "We are positive on the Emerson deal and believe the addition of the two software assets will allow AZPN to expand into adjacent markets and help position the company to grow revenue 9% to 13% annually."

The Emerson businesses integrated into AspenTech are involved in grid-management software to electric companies and geologic modeling software to oil and gas firms.

Mergers Pick Up

The Emerson-AspenTech deal is part of a trend in industrial markets.

France's Schneider Electric recently agreed to buy U.K.-based industrial software maker Aveva. Schneider was already a big stakeholder in Aveva. Earlier, factory automation equipment maker Rockwell Automation (ROK) acquired a large stake in software maker PTC.

Back in 2017, Emerson apparently viewed Rockwell as a takeover target.

Now it's clear that AZPN stock has outperformed in 2022.

The iShares Expanded Tech-Software ETF (IGV) has plunged 36% so far this year. The software index has tumbled 44% from its all-time high reached on Nov. 9. And IBD's enterprise software group ranks only No. 110 out of 197 industry groups tracked.

The 2022 pullback in software stocks followed stellar gains in previous years. In 2020, the software index soared nearly 52% vs. the S&P 500's gain of 16.3%. Software stocks also outperformed in 2019 and 2018.

AspenMeanwhile, Bank of America recently valued Emerson's 55% stake in AspenTech at $8 billion, up from $6 billion at the time of the October 2021 deal. EMR stock is down more than 21% so far this year.

In early 2022, AZPN stock got a boost from rising oil prices. The company takes in roughly 40% of its revenue from the oil and gas industry.

Amid the Russia-Ukraine war, Europe and its partners are expected to build new liquefied natural gas facilities. Further, Russia has halted LNG supplies to Europe. Europe is looking to Qatar and others as alternatives.

LNG stocks continue to show constructive action against a receding market.

AspenTech's Natural Gas Opportunity

At the Piper Sandler conference, Pietri commented on the long-term LNG opportunity.

"When you look at Qatar, they're one of the biggest producers of LNG in the world," Pietri said. "And now they've announced partnerships with companies like TotalEnergies, Exxon Mobil and others to help finance and eventually operate these facilities. The way we see that investment show up in our business, it starts with the engineering companies."

He added: "And I believe that probably because of some of these investments is why we saw a faster growth in our engineering business in fiscal 2022 than what we expected.

XOM stock has gained 40% in 2022.

"And eventually it's why we think we'll have a faster-growing fiscal 2023 because these engineering companies benefit from all that capital spending and the design for these assets," Pietri said. "That's how we see it manifest itself, is through the use of our software in our customers' organizations."

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

These Video Game Stocks Are Deemed Top Picks For A Comeback

Top Health Care Stock Holds Up During Market Downturn, Builds Base

Learn How To Time The Market With IBD's ETF Market Strategy

Bear Market News And How To Handle A Market Correction

Chart Reading For Beginners: Nvidia, Amazon, Pinterest Reveal This Key Investing Skill