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MSC: A Big Boost from a Buyout

By Mara Der Hovanesian

For a virtual test drive of their products, General Motors, Lockheed Martin, and NASA look to MSC.Software (MNS). MSC's simulation software lets companies digitally stress-test designs for products such as cars and rockets before manufacturing begins. Now, MSC has created versions of its software to make it accessible to companies that have smaller, more mundane products--and that want to get to market faster. It has signed up Cooper Tire, Medtronics, and Cleveland Golf, which is using the simulation software to test new clubs. MSC is "expanding by taking a product loved by engineers to the mainstream," says Daniel Bandi, co-manager of the $580 million Armada Small-Cap Value Fund. Bandi holds a 2% stake in MSC. On May 22, MSC hit a 52-week high of $18.85. Bandi's yearend target is $30.

Other forces could push the stock higher, says Bandi, such as perhaps joining the Russell 2000 on June 30. The company may also be buyout bait, says Bandi. In May, France's Dassault Systemes traded its 19% stake in an IT group, Advanced Enterprise Solutions (AES), for 9% of MSC. (MSC had acquired AES on Apr. 24.) Bandi says a Dassault takeover has been rumored for "several years," but the stakes are higher now. Merrill Lynch's Jay Vleeschhouwer is bullish on the stock, but skeptical about the takeover. For 2001, he sees revenues of $201.7 million, up 13%, and earnings of $1 a share, up 36%. He adds, though, that if buying AES boosts MSC's profits as much as it has suggested, "the current price could turn out to be conservative." Gene Marcial is on vacation.

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