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Key Takeaways
- Strategic transition to a new transaction model and automation enhances sales efficiency and strengthens financial margins for Autodesk.
- Investments in cloud and AI lead industry peers, ensuring future growth and valuable, connected customer solutions.
- Transitioning to a new transaction model amid macroeconomic and geopolitical challenges introduces revenue volatility, risks to growth, and potential profitability pressures for Autodesk.
Catalysts
About Autodesk- Provides 3D design, engineering, and entertainment technology solutions worldwide.
- Autodesk's transition to a new transaction model and go-to-market optimization is expected to increase sales and marketing efficiency, enhancing GAAP margins among the best in the industry. This model will reduce duplication of effort and emphasize value creation through digital self-service and automation. (Net margins, revenue)
- Investments in cloud, platform, and AI are ahead of peers and expected to drive future growth, enabling Autodesk to offer more valuable and connected solutions to customers, thus enhancing revenue and earnings potential. (Revenue, earnings)
- The Autodesk Construction Cloud continues to see rapid growth, with strong net new customer additions and doubled year-over-year growth in new customers, potentially driving higher revenue from this segment. (Revenue)
- The shift to annual billings for multiyear contracts and the rollout of the new transaction model provide a tailwind to free cash flow and revenue growth, creating a structurally stronger financial foundation for future growth. (Free cash flow, revenue)
- Autodesk is actively managing capital deployment through increased share repurchase authorizations, reducing share count and offsetting dilution, expected to enhance earnings per share over the medium term. (Earnings per share)
Autodesk Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Autodesk's revenue will grow by 11.1% annually over the next 3 years.
- Analysts assume that profit margins will increase from 18.3% today to 20.9% in 3 years time.
- Analysts expect earnings to reach $1.7 billion (and earnings per share of $7.86) by about December 2027, up from $1.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.3 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.9x on those 2027 earnings, down from 59.6x today. This future PE is greater than the current PE for the US Software industry at 42.0x.
- Analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.
Autodesk Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The transition to a new transaction model and annual billing for multiyear contracts has created noise in billings and revenue recognition, presenting potential volatility and uncertainty in revenue streams.
- Macro policy and geopolitical challenges have been cited as headwinds to new business growth, which might affect Autodesk’s ability to secure steady revenue growth rates amid global instability.
- There is a declining contribution of billed and unbilled deferred revenue from large, multiyear and EBA cohorts ahead of renewal in fiscal '26, indicating potential negative impacts on future revenue and cash flow projections.
- The market faces an overall slowdown in new business momentum due to factors like macroeconomic conditions, geopolitical events, and policy shifts, posing risks to sustained revenue growth.
- Incremental investments in people, processes, and automation related to the new transaction model may introduce margin headwinds, which can result in reduced profitability metrics despite potential revenue growth.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $327.01 for Autodesk based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $380.0, and the most bearish reporting a price target of just $275.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $8.2 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 50.9x, assuming you use a discount rate of 7.0%.
- Given the current share price of $302.82, the analyst's price target of $327.01 is 7.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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