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AutoDesk Downgraded At Mitsubishi UFG

Autodesk, Inc. NASDAQ:ADSK - AutoDesk Downgraded At Mitsubishi UFG

Mitsubishi UFG has downgraded Autodesk, Inc. ADSK to Underweight from Neutral, as the brokerage is not convinced of the immediate positives from the company's shift to a new subscription model.

Moreover, the brokerage has less conviction on its revenue and earnings estimates, due in large part to limited visibility of the business's current and future health.

The downgrade comes after the company reported a surprise second-quarter profit, which led the stock to new 52-week high on Friday. Autodesk reported second-quarter EPS of $0.05, while analysts were expecting a loss of $0.13.

Meanwhile, Mitsubishi views the company's shift to a full subscription model "as more of a step function than a rejuvenation" of the company's long-term growth dynamics.

"Fundamentally, we are not convinced that the company's new subscription payment model will serve as a catalyst for end-market growth, which we believe has been a fundamental limiting factor for the company for several years," analyst Stephen Bersey wrote in a note.

Related Link: Autodesk Q2 Beats Estimates, Boosts Guidance; Baird Raises Target To $75

Autodesk faces operational risk as the shift to subscription-only model could drive away potential customers who may want only perpetual licenses. Also, the company may face customer attrition and backlash, as existing maintenance customers are forced to move to subscription.

Further, Bersey opined that the limited cloud functionality is not materially addressing the company's key challenges.

The analyst also questioned the long-term top-line impact of Suites, as he "do not believe that the company's new subscription model, cloud offerings, or the soon-to-be-released Collections Suites will bolster revenue beyond mid-to-upper-single-digit growth for the foreseeable future."

As such, the company is missing a catalyst to boost the current slow-growth revenue trend of just a 3.97 percent CAGR for the eight years through FY15.

At the time of writing, shares of Autodesk were down 0.46 percent to $68.55. Bersey maintains his target price of $50, an implied downside of 27 percent versus Friday's close.

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Aug 2016Mitsubishi UFGDowngradesEqual-weightUnderweight
Aug 2016Cowen & CompanyMaintainsOutperform
Aug 2016Canaccord GenuityMaintainsHold

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