Autodesk (NASDAQ: ADSK) is a global leader in 3D design, engineering, and entertainment software, offering clients effective business solutions through decisive technology products and services.
The company serves customers in architecture, engineering, and construction who utilize Autodesk’s software to design, fabricate, manufacture, and build anything by visualizing, simulating, and analyzing real-world performance early in the design process.
In my view, Autodesk is well positioned to capitalize on the ever-growing trend of digitalization, companies’ appetite for innovation and optimization of their designs, as well as its software’s capabilities in terms of money and time-saving.
That said, I remain cautious of the stock’s valuation levels, and for this reason, I am neutral on Autodesk for the time being.
Recent Results
Earlier in December, Autodesk posted its Q3 2022 results, with the company’s overall performance coming in rather strong. Total revenues increased 18% to $1.1 billion, while the non-GAAP operating margin grew by 200 bps to 32%. Non-GAAP diluted EPS was $1.33, compared to $1.04 in the third quarter of last year, also growing rather impressively.
During the quarter, Autodesk’s customers continued to embrace and prioritize digital transformation to drive growth, efficiency, and
sustainability, generating strong demand for the company’s platform.
Revenue growth was powered by robust demand driven by strong new subscriptions growth and renewal rates. The company expects growth to remain strong in upcoming earnings, however, management also expressed its concerns regarding the ongoing supply chain disruption, inflationary pressures, and a global labor shortage, which may affect performance going forward.
Specifically, management’s guidance for FY 2022 included revenue growth of around 15%, implying a slowdown. Management also mentioned that while the company continues to target $2.4 billion of free cash flow in FY 2023, if the growth deceleration and a strengthened dollar continue through next year, Autodesk could see potential risk to that target of about $100 million to $200 million.
FX volatility is a big factor. For instance, rate moves in the first half of the year created about $55 million in a potential headwind to FY 2023 cash flow. The ongoing weakness in China, and Autodesk’s larger exposure to commercial office building construction, which has slowed due to the work-from-home trend, could also affect the company’s performance going forward.
Autodesk remains optimistic about its growth potential beyond next year, continuing to target double-digit revenue growth, non-GAAP operating margins between 38% and 40%, and double-digit free cash flow growth on a
compound annual basis.
That said, due to the current concerns regarding a potential deceleration in growth, I believe that it’s not worth paying a premium for the stock. At the midpoint of management FY2022 EPS guidance of $4.98 – $5.04, the stock is currently trading at a P/E of around 56.7, which I find rather rich.
Wall Street’s Take
Turning to Wall Street, Autodesk has a Strong Buy consensus rating, based on 13 Buys, two Holds, and one Sell assigned in the past three months.
At $340, Autodesk’s stock price prediction suggests 19.6% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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