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Why Credit Suisse Added Autodesk to 2 Focus Lists

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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By Chris Lange