Trade of the Day: Autodesk (ADSK)

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With a $12 billion market cap, Autodesk (ADSK) is an established giant in the technology industry, leading the world in computer-assisted design applications and other engineering software. The company essentially generates the programs that manufacturers feed 3-D printers and less sophisticated robotic assembly lines to mass produce any object as cheaply and reliably as possible.

As a long-term player in the 3-D printing revolution, Autodesk is an extraordinarily interesting company. However, for more immediate trading purposes, the story boils down to two core points.

First, Autodesk has stabilized here in June around $54 after falling 15% in late April and May. Analysts seem to have overreacted to sour guidance by applying unexpected weakness in the current quarter across their long-term models, effectively locking in the worst case scenario for years to come. At this stage, the models suggest that ADSK will rebuild its growth ramp over the remainder of this year and then relapse in Q1 2016 to its current weakened state. There is no good explanation for this reversion in the outlook, especially when you consider that Autodesk is increasingly selling its software on a recurring subscription basis, making sales unlikely to fluctuate much.

Other traders are figuring this out now, which is my second trigger. Guidance knocked Autodesk from around $57.50 to a recent low of $52.69 on June 15. The price action has stabilized and even recovered about 3.5% as the market discovers where the new fair value should be.

History suggests that the market should be willing to pay about 52X forward earnings for Autodesk on the right swing. Factoring out a bizarre Q1 relapse, these shares could justify a trading price close to $62, and the odds of a solid move in the near term are too tempting to ignore.

Recent rumors of a significant buyback program are an additional catalyst. We don’t know whether Autodesk will apply much of the $750 million in cash it just raised through a debt offering to reduce its float, but in theory a roughly 6% reduction in supply of this stock could be on the table. Fewer shares mean higher earnings per share, which feeds the case for higher fair value even at a constant multiple.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane TraderAbsolute Capital Return and Value Authority.

She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/trade-of-the-day-autodesk-adsk-2/.

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