3DEXPERIENCE And MEDIDATA Propel Growth Despite Automotive Challenges

Key Takeaways

• The 3DEXPERIENCE platform and cloud adoption are driving gains in market share and high-margin revenue streams, enhancing revenue and earnings growth potential.
  
• Expansion with key partners like BYD and Merck, along with MEDIDATA innovation, offers opportunities in high-growth sectors, boosting future revenue streams.
  
• Delays in European and U.S. automotive sectors and large deal closures create revenue uncertainty, risking earnings growth and impacting net income targets.

Catalysts

Provides software solutions and services worldwide.

• The 3DEXPERIENCE platform is expected to drive market share gains by enabling customer transformation and leveraging AI, which could lead to revenue growth acceleration in key industrial sectors.
  
• The expansion of partnerships with major companies like BYD and Merck suggests future growth opportunities by enhancing performance and expanding use cases, potentially increasing revenue streams in high-growth sectors.
  
• MEDIDATA recovery is driven by sequential growth in global clinical trial starts and new innovations like MEDIDATA Clinical Studio and Rave Lite, which could stabilize and grow revenues in the Life Sciences market.
  
• Strength in high-margin subscription and cloud revenue, including 3DEXPERIENCE Cloud's strong adoption, indicates a shift to higher-margin revenue streams, potentially improving net margins and earnings.
  
• Centric PLM's strong performance, marked by significant competitive displacements and platform expansions, highlights potential for sustained revenue growth and improved financial performance across diverse end markets.

Dassault Systèmes Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dassault Systèmes's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.3% today to 22.2% in 3 years time.
• Analysts expect earnings to reach €1.7 billion (and earnings per share of €1.3) by about November 2027, up from €1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.9x on those 2027 earnings, down from 38.7x today. This future PE is lower than the current PE for the GB Software industry at 39.4x.
• Analysts expect the number of shares outstanding to grow by 0.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.36%, as per the Simply Wall St company report.

Dassault Systèmes Future Earnings Per Share Growth

Risks

• The contraction in automotive volumes in Europe and the U.S. has created headwinds, delaying decision-making, which may impact short-term revenue and growth prospects. This could result in slower-than-expected earnings growth.
  
• Dassault Systèmes faced headwinds in Europe and the U.S. automotive sectors, causing a lower-than-expected revenue outcome in Q3, which could affect overall revenue growth predictions if the automotive industry continues to struggle.
  
• The delay in large deal closures, particularly in aerospace and automotive sectors, has created uncertainties in revenue forecasts, increasing the potential for revenue fluctuations in coming quarters and impacting earnings.
  
• The high comparables from previous quarters in Europe and significant Q3 revenue variance could pressure net margins and reduce the predictability of future earnings.
  
• The MEDIDATA renewal rates could pose a risk if they fail to meet expected expansion levels, potentially impacting subscription and overall software revenue growth, thereby affecting net income targets.

Valuation

• The analysts have a consensus price target of €37.58 for Dassault Systèmes based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €47.0, and the most bearish reporting a price target of just €27.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €7.8 billion, earnings will come to €1.7 billion, and it would be trading on a PE ratio of 34.9x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €32.91, the analyst's price target of €37.58 is 12.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.