Autodesk Stock Forecast: ADSK Is A Buy Before Earnings

motek 1This Autodesk stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Autodesk will report its 3Q FY2020 earnings on November 26. I expect it to beat Wall Street’s EPS and revenue estimates.
  • I recommend ADSK as a buy before earnings gambit. This stock is now trading well below its 2019 high of $178.21. ADSK’s 6-month return is -13.63%.
  • If my bet that Autodesk will report better than expected 3Q FY2020 EPS and revenue numbers, ADSK might shoot up to $165 before December 31.
  • Autodesk’s rapid shift to subscription-based software marketing is paying off well. Its annual recurring revenue is now $3.07 billion. Recurring revenue now accounts for 96% Autodesk’s sales.

I previously endorsed Autodesk (ADSK) as a buy before its 1Q FY 2020 earnings report last March 7. The stock was trading below $151 during that article’s publication. Lucky for me, ADSK went up to $178.21 on April 30. ADSK’s price is back to $150.25 mainly because management made a downside Q3 guidance and cut its full fiscal year estimate last August 28.

I still rate ADSK as a buy because its Q2 FY 2020 performance showed high double-digit annual growth rate for all of its software product lines. Autodesk beat Q2 estimates last August because its rapid shift to pure software subscription business model is truly working. Please study the chart below.

Autodesk Stock Forecast
(Source: Autodesk)

Why ADSK Is Worth Adding To Your Portfolios

ADSK is a great long-term investment because its two biggest product segments, AEC and AutoCAD and AutoCAD LT, are both growing their revenues at over 30% year-over-year growth rate. Autodesk is ranked no. 1 in Building Information Modelling (BIM). Autodesk is actually growing its AEC and AutoCAD (BIM-related software products) faster than the average CAGR of the BIM software market. The global software market size is only growing at a CAGR of 12.7%.  It will grow from $4.9 billion in 2019 to $8.4 billion.

Autodesk’s AEC and AutoCAD segments combined quarterly revenue is now $565.5 million. Autodesk’s BIM-related annual revenue could therefore be between $1.5 billion to $2.3 billion. A company that has almost 50% market share in BIM software market is worth adding to your long-term investment portfolio.

Further, the overall 3D CAD market (covering architecture, civil engineering, manufacturing, healthcare, entertainment) is also growing at a CAGR of 5.9%. It will have a market size of $14.9 billion by 2026. Autodesk is again no.1 in 3D CAD. Its AutoCAD family of software products tout 37% global market share (compared to Solidwork’s 12%). ADSK is worth adding to your long-term investment portfolios because AutoCAD is really a pseudo monopoly on construction.

Please study the chart below. It a showcase of Autodesk’s decades-long leadership in 3D CAD software sales.

Autodesk Stock Forecast
(Source: Enlyft)

Autodesk is a buy because it is the biggest supplier of 3D CAD software to the global construction industry. The global construction industry is also growing at a CAGR of 10.4%. It will have a market size of $11.15 trillion by 2022 (from just $7.76 trillion in 2018). Autodesk’s runaway leadership in construction software is probably why it has higher valuation ratios than Adobe (ADBE) and Intuit (INTU).

Autodesk Stock Forecast
(Source: Seeking Alpha)

Why Autodesk Will Beat Q3 Estimates

My takeaway is that management purposely made a less optimistic Q3 guidance so they can surprise us all on November 26. Management issuing a downside guidance for the next quarter is a neat trick that can fool most investing people. Not me. I’m therefore suggesting you should buy the shares before its November 26 earnings report. My fearless forecast is that Autodesk will report a beat on both 3Q FY2020 EPS and revenue estimates.

The consensus 3Q FY20 EPS estimate is $0.73 (Non-GAAP). Autodesk management guided for a non-GAAP 3Q EPS of $0.70 – $0.74, and revenue between $820 – $830 million. These humbled down projected numbers are not hard to beat. My own EPS estimate is $0.77, and revenue of $835 million.

Autodesk Stock Forecast
(Source: The Wall Street Journal)

Conclusion

Autodesk’s stock has high valuation ratios. However, this is a Software-as-a-Service company with very high margins. A SaaS company always deserves high valuation ratios. In spite of free software alternatives (or cheaper alternatives, Autodesk remains the undisputed leader in 2D/3D CAD software products. The inability of other companies to disrupt the AEC and AutoCAD software products of Autodesk is why ADSK touts gross profit margin of over 90%.

Another compelling reason to go long ADSK is that it has delivered positive levered free cash flow for the last five quarters. Autodesk’s most recent quarterly levered free cash flow is now $109.6 million. This can improve further going forward as more Autodesk customers are forced to shift from software maintenance subscription plans to full subscription-only payment scheme.

Autodesk Stock Forecast
(Source: Seeking Alpha)

The stock picking AI of I Know First is also bullish on ADSK. It gave Autodesk’s stock a 1-year market trend score of 187.08. I Know First’s algorithmic stock forecast system has a high predictability score of 0.78 for ADSK’s one-year market pattern. The stock picking/predicting AI of I Know First therefore has an excellent track record of correctly predicting ADSK’s one-year market performance.

Autodesk Stock Forecast

How to interpret this diagram.

Past Success With Autodesk Stock Forecast

I Know First has been bullish on ADSK’s shares in past forecasts. On May 13, 2018, the I Know First algorithm issued a bullish forecast for Autodesk stock. The algorithm successfully forecasted the movement of the ADSK’s shares for the 1 year time horizon. ADSK’s shares rose by 21.09% in line with the I Know First algorithm’s forecast. See chart below.

Autodesk Stock Forecast
Autodesk Stock Forecast

This bullish Autodesk stock forecast was sent to the current I Know First subscribers on May 13, 2018.

Here at I Know First, Israeli fintech company, our algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing daily forecasts, forex forecastgold predictions, world indices, trade ideas by country and, in particular, Apple stock forecast. Additionally, we provide the latest Apple stock news ,updates and the latest launches. Today, we are producing daily forecasts for over 10,500 assets. This stock market forecast generated by our algorithmic trading tool is used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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