Top Analyst Slices Price Target on Autodesk, Inc. (ADSK), But Believes Stock Drop Presents a Solid Entry Point to Investors

Canaccord's Richard Davis still vouches for ADSK's long-term prospects, betting the stock can double within five years' time.


Autodesk, Inc. (NASDAQ:ADSK) shares are plunging almost 16% on the heels of the software maker’s fiscal third quarter print along with plans to lose 13% of its workforce, a slash to the harsh tune of 1,150 jobs. These layoffs have not thrilled investors and after a “squishy quarter,” even a bull is dialing down his expectations- for the near-term.

Top analyst Richard Davis at Canaccord notes that the print will now have investors pulling their attention to the short-term for the software maker, calling the showcase a ‘hiccup’ that could lead to an enticing buying opportunity, especially as the stock drops further. For now, the short-term rests on ADSK achieving its free cash flow target of $6 per share in 2019, as the analyst notes the company’s “story” now is laced with new risk.

In reaction, the analyst maintains a Buy rating on ADSK stock while cutting the price target from $140 to $135, which represents a 23% increase from current levels.

For the fiscal third quarter of 2018, Autodesk yielded a 5% year-over-year rise in total revenue to $515.3 million, which Davis praises a comeback to gains considering the company suffered nine back-to-back quarters of year-over-year dips. Meanwhile, the company’s non-GAAP EPS loss of ($0.12) fared a cent better than Davis’ expectations.

Yet, the problem of the print lies in net subscriber adds of 146,000 that fell under Davis’ forecast of 155,000, with subscription plan adds that fell 18,000 under the analyst’s projection. On a positive note, Davis notes this was offset with maintenance subscriber losses that were better than anticipated, with 9,000 less than expected. Annual recurring revenue (ARR) met expectations for the quarter, experiencing a 24% year-over-year surge to $1.9 billion. With mixed results considering subscription metrics “miss[ed] the mark,” the analyst points out Subscriptions ARR underperformed his estimate by $23 million, but Maintenance ARR conversely shot $25 million above.

“When investors are bullish, they extend the distance out to which they discount cash flows. Autodesk has two ‘milestone’ FCF figures: $6 in calendar 2019 and $11 in 2022. As ADSK shares blew past $120, happy and optimistic investors presumably extended their gaze to 2022 estimates. Last night, the company’s results shook that confidence with a shortfall in the metrics everyone cares about: subscription additions and ARR. Deep down, investors realize that no business is linear, especially a complicated business model transition like Autodesk. Even so, a miss is a miss, and ADSK, like most software stocks these days, was pretty extended – so KaBOOM, the stock fell 11% after hours as investors presumably compressed their gaze from $11 to the nearer-term $6,” the analyst writes.

Overall, Autodesk’s future looks positive despite this stumble, as Davis concludes, “Longer-term, we still believe this stock can double to $200-250 within five years if the $11 is even roughly close,” adding that the “discomfort” from yesterday should serve as a “nice entry point” for investors.

Richard Davis has a very good TipRanks score with an 83% success rate and a high ranking of #4 out of 4,735 analysts. Davis earns 34.1% in his annual returns. When recommending ADSK, Davis yields 38.7% in average profits on the stock.

TipRanks analytics demonstrate ADSK as a Strong Buy. Based on 12 analysts polled by TipRanks in the last 3 months, 11 rate a Buy on Autodesk stock while 1 maintains a Hold. The 12-month average price target stands at $137.17, marking a nearly 26% upside from where the stock is currently trading.

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