Stock Analysis & Ideas

Autodesk Stock: Stellar Quarter, but Recession Risks Remain

Story Highlights

Autodesk recently came off some magnificent quarterly results that induced a 10% pop in the stock last Friday. With a potential recession looming, though, can the economically-sensitive software developer sustain a rally?

Shares of top computer-aided design (CAD) software developer AutoDesk (ADSK) got a bit of relief on Friday, surging over 10%. The big single-day bounce came in response to a solid round of first-quarter earnings results. Not only did AutoDesk beat, but management was confident enough to deliver upbeat guidance. Indeed, it’s nice to see a stock responding positively to a quarterly “beat and raise” for a change. The big post-earnings rally came on a big up day for broader markets led by technology stocks.

As inflation shows signs of retreating, the Federal Reserve may not need to give as large a rate-hike dose as initially expected. Still, now is not the time for Fed Chairman Jerome Powell to suddenly turn dovish, with the Fed’s preferred inflation measure (core personal consumption expenditures) climbing a modest 4.9% for April.

Such easing metrics act as a great source of comfort for investors in high-multiple growth stocks like AutoDesk. Looking ahead, May’s inflation numbers may be as material to AutoDesk stock as its own quarterly results.

This past week has induced a significant sigh of relief for ADSK shareholders, with inflation signaling a cooldown and renewed hope that the economy won’t be in for a recession as severe as was in 2008. That’s excellent news for AutoDesk, a technology company serving the economically-sensitive industries of AEC (architecture, engineering, and construction).

Down around 37% from its all-time high of about $334 per share, the innovative software company may have room to run if the economy isn’t bound for the rough landing that some bearish folks may think we’re in for. Despite the still-hefty valuation, I remain bullish on ADSK stock. The fundamentals are shining through, and the valuation isn’t that absurd.

On TipRanks, ADSK scores a 10 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.

AutoDesk Clocks in Stellar First-Quarter Fiscal 2023 Results

Despite the $40 million impact from stopping business in Russia in response to its invasion of Ukraine, AutoDesk’s revenues came in strong at nearly $1.2 billion, up an impressive 18% year-over-year. Non-GAAP per-share earnings grew an equally impressive 27%.

Undoubtedly, the subscription model helped ease the macroeconomic volatility that would have been more visible in a firm with a consumption-based revenue recognition model like Snowflake (SNOW). The cyclical AEC industries can inflict considerable pain in times of economic turmoil.

For now, it seems like AutoDesk is holding its own despite its exposure. That said, anything worse than a soft landing type of recession could have a detrimental impact on the stock.

Topping off the great quarter was an upbeat update to its guidance for fiscal year 2023. Innovyze — an end-to-end water infrastructure software developer — was recently acquired by AutoDesk. The deal should make AutoDesk an even bigger beneficiary of the $1 trillion U.S. infrastructure bill.

Undoubtedly, AutoDesk is showing its resilience, and the stock may have more room to run as tech looks to sustain some sort of relief rally after years of dragging the rest of the market down.

AutoDesk Stock: Too Cyclical to Own in the Face of a Recession?

AutoDesk is an incredibly innovative company that will continue introducing new features and tools over time. At writing, shares of AutoDesk trade at 10.1 times sales, 71.8 times cash flow, and 95.9 times trailing earnings. Even after the sizeable sell-off, the valuation is still a tad lofty for most value-conscious investors. With a sizable 1.43 beta, AutoDesk is also likely to be far more volatile than the broader markets, given it is closely tied to the fate of the AEC industries.

AutoDesk stock is not one to reach out for in the face of a recession. That said, there’s a big chance that recession fears are overblown at this juncture. Further, a mild, garden-variety recession is unlikely to be nearly as detrimental to the stock compared to the likes of the Great Recession, which caused ADSK to lose around 70% of its value from peak to trough. Worse, it took approximately seven years for the stock to recover.

Indeed, dip-buying in AutoDesk stock could prove risky, with signs of economic deterioration. Though the recent round of earnings was encouraging, it will be hard to remain resilient if the economy takes a turn for the worst, dragging architecture, engineering, and construction industries down with it.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, ADSK stock comes in as a Strong Buy. Out of 16 analyst ratings, there are 14 Buy recommendations and two Hold recommendations.

The average AutoDesk price target is $260.47, implying an upside of 25.38%. Analyst price targets range from a low of $216 per share to a high of $355 per share.

The Bottom Line on AutoDesk Stock

AutoDesk’s recent quarter was impressive. I wouldn’t be surprised if the firm’s beat and raise sustained a continued rally to much higher levels from here, especially if inflation continues to show signs of backing down. Pending a severe recession, AutoDesk seems more than worth the seemingly lofty price of admission.

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