Why Credit Suisse Added Autodesk to 2 Focus Lists

By Chris Lange Published Aug 3, 11:55AM EDT

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In an effort to address the evolving needs of its users, Autodesk Inc. (NASDAQ: ADSK) has shifted to more cloud computing options, increasing its suite offerings and expanding its product lines. Not all analysts are positive on the outlook going forward. However, 24/7 Wall St. has taken one of the most bullish calls and added a little color.

Credit Suisse reiterated an Outperform rating for Autodesk with an $80 price target. What stands out was that Credit Suisse added Autodesk to its U.S. Focus and Global Focus Lists. Despite medium-term downside risk to fiscal 2017 and 2018 numbers, Credit Suisse sees Autodesk’s business model changes driving post-transition earnings of $8.00 per share in 2023, versus the $4.00 consensus.

The firm estimates that Autodesk’s business model changes will drive post-transition, “normalized” earnings power of $8.00 per share (on $6.344 billion in revenue) in fiscal 2023. However, Wall Street wanted a straightforward calculation of Autodesk’s post-transition revenue, similar to Adobe’s simple equation. That is: Creative Suite user base × Creative Cloud average selling price (ASP) = Adobe’s subscription revenue.

At Investor Day 2014, Autodesk stated that it had 2.9 million users not on subscription or maintenance, in addition to the 2.1 million active maintenance/subscription users. Based on its disclosures, Credit Suisse calculated that Autodesk maintains 1.717 million LT users (0.412 million subscribers and 1.305 million non-subscribers) and 3.283 million users of the remainder of its product portfolio (1.688 million subscribers and 1.595 million non-subscribers).

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Credit Suisse described its method for calculating ASP:

By taking Autodesk’s maintenance/subscription user base divided by annualized maintenance revenue during the second quarter and third quarter of fiscal 2015, we estimated an annual ASP of $563 per maintenance/subscription user ($162 for LT users and $660 for non-LT users). Based on (1) the end-of-sale of perpetual Autodesk licenses in favor of subscriptions and (2) our assumption that Autodesk will converge maintenance pricing to that of Basic Subscription (which is ~2.65 times higher), we calculated a post-transition annual ASP of $1,260 per user ($324 for LT products and $1,750 for the remainder of Autodesk’s portfolio).

After this the firm multiplied each user base by its respective ASP. Credit Suisse calculated post-transition revenue of $6.302 billion, which reinforces the firm’s normalized revenue forecast of $6.344 billion. In fact, the brokerage firm considers this analysis conservative because it does not take into account any user growth or and additional upsell.

The stock has a consensus analyst price target of $69.71, which is well below Credit Suisse’s price target of $80. The highest target from analysts is $81.

Separately, an analyst at Baird lowered the price target to $70 from $80 in mid-July after opining that Autodesk’s 2018 model just was not attainable.

Shares of Autodesk were up 4.3% at $52.75 late Monday morning, within its 52-week trading range of $48.38 to $65.00.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.