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Autodesk: Buy, Sell, or Hold?

With the rising number of coronavirus cases in the United States, people are expected to spend more time at home which will boost certain companies. Autodesk (ADSK) has a promising revenue and earnings outlook. The company is well-positioned to benefit from the growing demand for cloud-based services and reliable tech infrastructure.

Founded in 1982, Autodesk, Inc. (ADSK) is one of the established players in the software industry. The company operates as a software designing and services company. It serves customers in the architecture, engineering and construction, manufacturing, digital media, and entertainment industries.

The pandemic has forced several companies to go online for their survival. This trend has helped ADSK witness a significant increase in demand for its products and services. The company offers AutoCAD which is a professional design, drafting, detailing, and visualization software, and BIM 360 which is a construction management cloud-based software, to name a few. The stock has gained 52.8% year-to-date. This impressive performance and the potential upside based on several factors have helped the stock earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates ADSK:

Trade Grade: A

ADSK is currently trading above its 50-day and 200-day moving averages of $252.82 and $237.33, respectively, indicating a significant uptrend. Moreover, ADSK has gained 33.2% over the past six months, reflecting a solid short-term bullishness.

The company’s fiscal third-quarter earnings release exceeded analysts’ expectations as the company’s growth was driven by the healthy subscription renewal rates and a resilient business model. The company’s top line increased more than 13% year-over-year to $952.4 million for the fiscal third quarter ended October 2020. Subscription plan revenue increased 24% year-over-year to $884 million. Net income increased 98.2% year-over-year to $132.2 million. Non-GAAP EPS increased by 33.3% year-over-year to $1.04.

On November 24th, ADSK completed its acquisition of Spacemaker for $240 million providing the company a powerful and modern platform to accelerate outcome-based design capabilities for architects, and urban designers, and planners. Last month, the company announced the future availability of Autodesk Tandem which brings project data together from its many sources to create a data-rich digital hub that tracks asset data from design through operations.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, ADSK is well-positioned. The stock is currently trading just 0.8% below its 52-week high of $282.49, which it hit on November 25th.

Looking at the past three years, the stock has grown 155.5% due to its constant innovation and strategic acquisitions. ADSK’s revenue grew at a CAGR of 22.6% over the same period. The company made several investments in design and construction solutions providers in the last three years, and also completed five strategic acquisitions.

Peer Grade: A

ADSK is currently ranked #2 out of 48 stocks in the Software-Business industry. Other popular stocks in the software-business group are Inc (CRM), ServiceNow, Inc. (NOW), and Tyler Technologies, Inc. (TYL).

ADSK beat CRM and TYL that gained 51.1% and 42.5% year-to-date, respectively, while NOW returned 89.3% over this period.

Industry Rank: B

The Software-Business industry is ranked #48 out of the 123 industries. With people spending more time at home due to the pandemic, the demand for the companies in this industry has gone up significantly.

This industry is responsible for the designing, development, and publishing of software used to collect, store, report, and analyze data from various business operations. With many companies shifting to remote working structures permanently, the demand is expected to continue even post-pandemic.

Overall POWR Rating: A (Strong Buy)

ADSK is rated “Strong Buy” due to its solid short-and-long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

ADSK has the potential to soar in the upcoming months despite gaining 52.8% so far this year, based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for ADSK. It has an average broker rating of 1.4, indicating a favorable analyst sentiment. Out of 18 Wall Street analysts that rated the stock, 13 rated it “Strong Buy.” Moreover, ADSK has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.01 billion for the quarter ending January 2021 indicates 12.3% growth from the same period last year. Its EPS is expected to grow 31.4% next year. This outlook should keep ADSK’s price momentum alive in the near term.

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ADSK shares were trading at $276.58 per share on Tuesday afternoon, down $3.65 (-1.30%). Year-to-date, ADSK has gained 50.76%, versus a 15.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.


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