Is Autodesk Stock a Buy?

Engineering design software provider Autodesk (ADSK 3.07%) is one of the fascinating investment proposals on the market. It’s a stock that looks likely to reward long-term investors, but anyone buying should be aware that it will take time for the company’s full potential to show up in the numbers. Here are some of the red and green flags flying simultaneously around Autodesk.

Expectations

No one likes when a company they invest in keeps dropping its earnings forecast, and Autodesk investors are no different. The company’s guidance, particularly for fiscal 2023 – the current fiscal year, which will end in January – has long been a battleground among investors.

Debate has long centered on management’s previous forecast of $2.4 billion in free cash flow (FCF) for fiscal year 2023. This was a significant step up from the $1.35 billion reported in 2021. and the original forecast of $1.575 billion to $1.65 billion in 2022.

However, Autodesk missed its initial 2022 FCF forecast estimate (returning just $1.48 billion), and its 2023 FCF forecast is now between $2 and $2.08 billion.

What the market thinks of Autodesk

To flesh out what Wall Street now expects from Autodesk, here’s a look at consensus forecasts for earnings and FCF.

There are a few things to note here. First, the market’s FCF estimate for 2023 ($2.04 billion) is in the middle of management’s forecast range, but is significantly lower than the previous target of $2.4 billion.

Second, FCF is expected to decline in fiscal 2024 due to management’s revision of its billing strategy for large customers. In a nutshell, Autodesk will reduce its discounts for upfront payments in favor of multi-year contracts. This has the effect of reducing revenue and FCF in the implementation year, but possibly increasing long-term revenue and FCF generation. This isn’t a significant issue on its own, but note that based on these numbers, Autodesk’s price/FCF multiple based on the current price will increase to 21 in 2024, even if revenue and profit continue to grow. increase.

Metric

2020

2021

2022

2023 (estimated)

2024 (estimated)

2025 (estimated)

Revenue

$3.27 billion

$3.79 billion

$4.39 billion

$5.02 billion

$5.72 billion

$6.51 billion

Earnings before interest, taxes, depreciation and amortization

$0.86 billion

$1.17 billion

$1.45 billion

$1.9 billion

$2.23 billion

$2.63 billion

Free movement of capital

$1.36 billion

$1.35 billion

$1.48 billion

$2.04 billion

$1.81 billion

$2.24 billion

Price versus free cash flow

28.4

28.6

26.1

18.9

21.3

17.2

Data source: marketscreener.com.

Additionally, Autodesk’s revenue growth will likely slow if the economy slows. After all, its architecture, engineering, construction and manufacturing clients are all in interest rate sensitive industries. If fears of an economic slowdown prove true, don’t be surprised if Autodesk lowers its full-year forecast.

Is the stock worth buying?

As I said above, investors buying shares of Autodesk will have to tolerate some short-term risk around its earnings. Additionally, the outlook for FCF growth will be clouded by the artificially induced slowdown in fiscal year 2024.

On the other hand, Autodesk continues to see double-digit revenue growth and has many growth drivers, including digitization in its core products. Thanks to digital technology, developers can better collaborate in design development and the “build and build” process. These technologies include its cloud building initiatives and its 3D modeling software. In addition, it is possible to convert customers over time to these products.

Additionally, Autodesk’s implied valuations shown in the table above are not expensive for a growth stock, and even with a slight reduction in 2023 guidance, you can still make the case for buying the stock. . However, be aware that you will have to wait a few years before the stock becomes high again, and the short-term risk increases.

Lee Samaha has no position in the stocks mentioned. The Motley Fool fills positions and recommends Autodesk. The Motley Fool has a disclosure policy.

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