Monday, August 18, 2008

FUNDAMENTAL FEATURE - Autodesk, Inc. (ADSK)

Auto Desk Surges 12% On Earnings, Outlook Neutral

On Thursday, August 14 after-hours, Autodesk, Inc. (ADSK) reported $0.39 per share, and excluding charges, would have earned $0.56 per share, beating analyst expectations. Analysts were expecting $0.52 per share. ADSK also upped revenue guidance as they expect revenue to come in between $625 - $635 million, up from $623.1 expected by analysts.

Even though ADSK faces increased risk from their exposure to cyclical spending and competition, ADSK’s size (market cap: $8.593 B) and tough market position is helping the company tread through the US economic slowdown. Revenue growth in 3D technology solutions increased revenue by 36% and favorable foreign exchange rates boosted revenue growth by about 7%.

Since 2004, net revenue increased at a compounded annual growth rate of about 23%. Operating income increased 21% so far in 2008 as compared to 11% in 2004 (income as a percentage of total revenues). In addition, gross margins increased 6% due to fixed expenses and better management of distribution networks.

I believe that the larger customers of ADSK are conservative toward allocating capital to software purchases. In addition, the US slowdown, intense industry competition, and the vigorous pricing battle occurring between these software vendors will hurt ADSK. However, this is offset by ADSK’s rapid expansion into emerging markets such as China and India. This has led to 40% revenue growth for ADSK.

For Q3, ADSK expects to earn $0.40 - $0.42 per share and excluding items, they expect to earn $0.54 - $0.56 per share on revenue ranging from $625 - $635 million. Currently, 20 analysts give recommendations on ADSK and currently there are 9 ‘Buy’ ratings, 10 ‘Hold’ ratings, and 1’Sell’ rating. Even from 6 months until now, only 1 firm has issued a ‘Sell’ rating on ADSK even though ADSK gapped down and traded in the $30-34 range, shot back up trading in the $37-42 range, and fell back down into a $32-$36 range. The stock is almost exactly back to where it was 6 months ago.

On Friday, ADSK gapped up nearly 12% and maintained momentum throughout the day, trading nearly 13.4 million shares. The average daily volume is 3.66 million. The MACD and RSI both indicate a bullish trend divergent from price action. ADSK hit an intra-day high at the 200-day MA before giving back some gains. This is a technical breakaway gap and I expect ADSK to either consolidate or trend higher in the short-term and remain neutral for the intermediate-term given the weaken volume in the NASDAQ rally.


Full Disclosure: No position in ADSK

Also available on: http://seekingalpha.com/author/john-c-lee

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