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Autodesk (ADSK) Earnings Unveiled: Buy or Sell Signal?

Autodesk (ADSK) will report its third-quarter results on November 21. While analysts expect the company’s EPS and revenue to increase year-over-year, should investors buy the stock given its stretched valuation? Let’s discuss…

Autodesk, Inc. (ADSK) is scheduled to report its third-quarter (ended October 31, 2023) results on November 21, 2023. The company’s EPS and quarterly revenue are expected to increase year-over-year. In this piece, I have discussed several reasons why it could be wise to buy the stock now.

ADSK’s EPS and revenue for the third quarter are expected to increase 17.1% and 8.4% year-over-year to $1.99 and $1.39 billion, respectively. ADSK surpassed the consensus EPS and revenue estimates in the last reported quarter. Its EPS came 10.6% above analyst estimates, while its revenue beat the consensus estimate by 1.9%.

After its strong second-quarter results, ADSK forecasted its third-quarter adjusted earnings to come between $1.97 and $2.03, up from the $1.70 per share last year. It also forecasted its revenues to come between $1.38 billion and $1.40 billion. Improved subscription revenues are expected to drive top-line growth for the quarter.

The growing adoption of its AutoCAD and AutoCAD LT products will likely boost its net revenues. Moreover, its Architecture, Engineering, and Construction (AEC) are expected to have maintained robust growth.

At the end of the second quarter, ADSK had projected its revenue for fiscal 2024 to increase between 8% and 9% to come between $5.41 billion and $5.46 billion. Its non-GAAP operating margin is expected to remain flat year-over-year. Its non-GAAP EPS is expected to come between $7.30 and $7.49. However, its billings are expected to decline between 12% and 11% to come between $5.08 billion and $5.18 billion.

On November 13, 2023, ADSK announced Autodesk AI, native to its Design and Make Platform and other Autodesk products. Its Design and Make Platform consists of Autodesk Platform Services and three industry clouds: Forma, Fusion, and Flow. The company says Autodesk AI provides intelligent assistance and generative capabilities to help designers with projects and improve workflows.

ADSK’s Chief Executive Andrew Anagnost said, “Autodesk AI is the assistant that lowers the learning curve for designers and engineers, supercharges their productivity, and accelerates innovation. AI is the future of design and make, and Autodesk is pioneering this transition.”

ADSK’s stock has gained 16.3% year-to-date and 1.2% over the past year to close the last trading session at $217.33.

Here’s what could influence ADSK’s performance in the upcoming months:

Robust Financials

ADSK’s total net revenue for the second quarter ended July 31, 2023, increased 8.7% year-over-year to $1.35 billion. Its non-GAAP income from operations rose 10.1% over the prior-year quarter to $489 million. The company’s net income increased 19.4% year-over-year to $222 million. Also, its non-GAAP EPS came in at $1.91, representing an increase of 15.8% year-over-year.

Favorable Analyst Estimates

Analysts expect ADSK’s EPS for fiscal 2024 and 2025 to increase 12.7% and 13.3% year-over-year to $7.47 and $8.47. Its fiscal 2024 and 2025 revenue is expected to increase 8.7% and 11% year-over-year to $5.44 billion and $6.04 billion.

High Profitability

In terms of the trailing-12-month net income margin, ADSK’s 16.77% is 848.3% higher than the 1.77% industry average. Likewise, its 21.35% trailing-12-month EBITDA margin is 136.1% higher than the industry average of 9.04%. Furthermore, the stock’s 39.95% trailing-12-month levered FCF margin is 392.1% higher than the industry average of 8.12%.

Stretched Valuation

In terms of forward EV/EBITDA, ADSK’s 22.96x is 60.8% higher than the 14.28x industry average. Likewise, its 8.61x forward EV/Sales is 230.7% higher than the 2.60x industry average. Its 29.09x forward non-GAAP P/E is 30.3% higher than the 22.33x industry average.

POWR Ratings Show Promise

ADSK has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADSK has an A grade for Quality, consistent with its high profitability.

ADSK is ranked #13 out of 131 stocks in the Software - Application industry. Access ADSK’s Growth, Value, Momentum, Stability, and Sentiment ratings here.

Bottom Line

ADSK’s EPS and revenue for the third quarter are expected to show solid growth. Strong growth across its product family is expected to boost ADSK’s revenues for the quarter. Moreover, generative AI functions across its product lines are expected to fuel its long-term growth.

Its robust fundamentals, favorable analyst estimates, and high profitability justify the stock’s premium valuation. So, it would be wise to buy the stock now.

How Does Autodesk, Inc. (ADSK) Stack Up Against Its Peers?

While ADSK has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Software - Application industry: eGain Corporation (EGAN), Commvault Systems, Inc. (CVLT), and IBEX Limited (IBEX).

For exploring more Software - Application stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ADSK shares were unchanged in premarket trading Monday. Year-to-date, ADSK has gained 16.30%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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