PTC should benefit from rising PMI readings, Baird says

Female supervisor controlling automatic production system in wood factory


Software and services company PTC (NASDAQ:PTC) is likely to benefit without a sharp rebound in domestic manufacturing activity, as it appears on track to record 20% free cash flow growth annually, Baird said.

However, rising PMI readings are likely to give the Boston-based company an added jolt, the firm said.

With the ISM PMI Manufacturing report ticking up above 50 in March, rising readings (coming off trough levels) “have historically coincided with favorable forward returns for PTC stock,” analyst Joe Vruwink wrote in an investor note.

Vruwink maintained his Outperform rating and $210 price target on PTC shares.

PTC, which provides design modeling software and product lifecycle management software, is still expecting a “subdued” spending environment through the end of fiscal 2024, as evidenced by their quarterly net new annual recurring revenue assumptions matching normal seasonal figures, Vruwink said. As such, it’s unlikely that any increase in manufacturing sentiment would drive an immediately uplift in spending.

However, a continued recovery in PMI figures could help boost the company’s price-to free cash flow valuation first and then ultimately improve its fundamentals, aiding annual contract value bookings “at some point later on,” Vruwink said.

PTC shares fell 1.1% on Tuesday, in-line with the broader decline in the market.

Roy Walsh

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