Shares of Autodesk (ADSK) have come under pressure, declining by about 8% in the last two trading days. The weakness in Autodesk stock follows the software maker’s FY22 billings projections, which didn’t sit well with investors.
However, its strong subscriptions, predictable cash flows, and expectations of higher price realizations, keep me bullish on ADSK stock. (See Autodesk stock charts on TipRanks)
It’s worth noting that Autodesk delivered better-than-expected Q2 results, wherein sales and earnings surpassed the Street’s estimates. (Read more: Autodesk’s Q2 Results Beat Estimates; Shares Fall 7%)
However, a cut in full-year billing guidance led to a sell-off in Autodesk stock. The company now expects FY22 billings to be $4,875 – $4,975 million, down from its previous guidance range of $4,930 – $5,055 million. Furthermore, the billings guidance also fell short of the consensus estimates of $5,016 million.
The guidance cut reflects a shift of the company's EBA (Enterprise Business Agreements) customers to annual billings from multi-year contracts, as well as the impact of the foreign exchange rate.
In response to its Q2 results, Rosenblatt Securities analyst Blair Abernethy noted that the shift in EBA recognition impacts billings. However, he maintained a Buy rating on Autodesk stock with a price target of $355 (12.5% upside potential).
Abernethy said that the company’s management has “confidence in achieving sustainable double-digit revenue and free cash flow growth over the long term.”
Notably, Autodesk’s CFO Debbie Clifford remains upbeat and expects “product subscription, volume, and renewal rates to continue to be healthy.” Moreover, Clifford sees the net revenue retention rate in the range of 100% and 110%.
While the shift from multi-year contracts will have a modest impact on FY22 billings and free cash flows, management expects it to drive prices and provide increased visibility over future free cash flow growth.
Following management’s Q2 conference call, Abernethy raised his subscription revenue estimates for FY22, FY23, and FY24. Further, he expects Autodesk’s overall revenues to increase at a CAGR (compound annual growth rate) of 15% in future years.
Alongside Abernethy, the majority of the analysts have a bullish outlook on Autodesk stock. On TipRanks, ADSK commands a Strong Buy consensus rating, based on 10 Buys and 2 Holds. The average Autodesk price target of $358.36 implies 13.5% upside potential to current levels.
Furthermore, Autodesk stock scores a “Perfect 10” on TipRanks' Smart Score system.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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