Focus Shifts to Speed of Recovery After Autodesk’s Upbeat Q3 Earnings; Target Price $290

Autodesk, an American multinational software corporation, reported better-than-expected earnings in the third quarter, largely driven by a recovery in subscription renewal rates, sending its shares up about 2% in pre-market trading on Friday.

The software company said its total revenue increased 13% to $952 million; GAAP operating margin was 18%, up 5 percentage points; Non-GAAP operating margin was 30%, up 3 percentage points; GAAP diluted EPS was $0.59; Non-GAAP diluted EPS was $1.04, beating market expectations of $0.96.

“Despite another great quarter for Autodesk, the company warned of the lagged effects they expect in fiscal 2022 as a result of the nature of subscription revenue recognition. While we previously had factored in such a lag, the effect is greater than we expected, moderating our fiscal 2022 expectations. Considering the rosy third-quarter results sobered by what could be an anomalous 2022 ahead, we are maintaining our fair value estimate of $198 per share for wide-moat Autodesk,” said Julie Bhusal Sharma, equity analyst at Morningstar.

“Share have remained flat upon news of the quarter, leaving shares trading at $258 per share. As a result, we continue to believe Autodesk is overvalued. Nonetheless, we reiterate our continued belief that Autodesk has built an extremely moaty company which we think will be well protected in the future,” Morningstar’s Sharma.

Autodesk’s shares closed 4.74% higher at $271.24 on Wednesday; the stock is up about 50% so far this year.

Autodesk Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $290.67 with a high forecast of $310.00 and a low forecast of $266.00. The average price target represents a 7.16% increase from the last price of $271.24. From those 13 analysts, 11 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $266 with a high of $370 under a bull-case scenario and $193 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the software company’s stock.

“An acceleration to +18% cRPO bookings growth likely suggests the worst is behind Autodesk. While our reseller checks and management commentary suggest a more gradual recovery thru FY22, greater confidence in durable 20%+ FCF growth into and through FY23 could drive a re-rating in the stock,” said Keith Weiss, equity analyst at Morgan Stanley

Several other analysts have also upgraded their stock outlook. Autodesk had its price target hoisted by equities research analysts at Credit Suisse Group to $275 from $265. The brokerage currently has an “outperform” rating on the software company’s stock. Mizuho upped their target price to $290 from $280 and gave the company a “buy” rating. Barclays increased their price objective to $295 from $283 and gave the company an “overweight” rating.

Analyst Comments

“The subscription transition (now largely complete) has significantly reduced volatility in earnings, which has driven the multiple higher. Additionally, Autodesk has found multiple avenues to better monetize a sticky customer base. However, long-standing debates on the longer-term sustainable growth, higher macro sensitivity and quality of near-term FCF likely limit further multiple expansion NT, leaving us EW on ADSK,” said Keith Weiss, equity analyst at Morgan Stanley.

“Our long-term model forecasts $9.80 in FCF/share by FY23 and $14.24 by FY26, applying a 25X EV/FCF multiple against this FCF and discounting back at 11.3% drives our $266 price target. Our applied 25X multiple is in line with design software peers,” Weiss added.

Upside and Downside Risks

Risks to Upside: Improved monetization of the customer base and reduction of piracy drives better than expected top-line growth. Secular opportunities within newer markets like Field Construction drives higher Cloud ARR growth – highlighted by Morgan Stanley.

Risks to Downside: High correlation to the global macro environment given a high dependence on construction and manufacturing industries. The increased investment is necessary to enter new markets pressures margins.

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