AutodeskADSK is on a mission to digitally transform the construction industry, managing projects from design through completion. The effort is showing up in Autodesk’s stock, which is hovering around an all-time high.
The maker of computer-aided design, or CAD, software has attracted a lot of converts on Wall Street. Investors have pushed Autodesk stock to record levels ahead of the company’s fourth-quarter earnings report, due Feb. 28.
Autodesk Chief Executive Andrew Anagnost envisions a “connected value chain” from architects at desktop PCs to construction workers on site with iPads.
Autodesk recognizes that “its ecosystem is a powerful one,” Baird analyst Rob Oliver told Investor’s Business Daily. “They’re in a better position now than they ever have been.”
An Acquisitive Outfit
The company has added to its software and service offerings through acquisitions. In January, it bought BuildingConnected, a leading preconstruction platform, for $275 million net of cash acquired. In December, it paid $875 million net of cash for PlanGrid, a leading provider of construction productivity software.
San Rafael, Calif.-based Autodesk also is benefiting from the transition to software-as-a-service from licensed software. The cloudcomputing business model affords a more predictable and stable revenue stream with the opportunity to generate more revenue over time from customers.
Autodesk stock reached an alltime high of 161.10 on Wednesday. It hit a buy point of 160.04 out of a 24-week consolidation period that day. Its relative strength line is notching new highs in bullish action.
Room To Grow
Autodesk has an IBD Relative Strength Rating of 95, meaning it has outperformed 95% of stocks over the past 12 months.
“We still see upside for Autodesk from here because the company’s executing really well,” Oliver said. He rates Autodesk stock as buy with a price target of 165.
Autodesk is early in the process of establishing direct-sales relationships with customers, Oliver says. It still does about 70% of its business through channel partners. The process is likely to be gradual because Autodesk doesn’t want to upset resellers and regional partners that have made it successful.
“Autodesk is executing extremely well managing its channel,” Oliver said. “How you execute this transition and move toward a more direct model is delicate. And Autodesk is doing it really well.”
But the business is headed that way, thanks to trends like cloud computing.
Keeping Partners Happy
Autodesk has made sure that its major channel partners know that they are important and relevant to the company, he says. It likely has communicated to them that while they might get a lower revenue share in the future, they also will be selling a larger array of software and services.
Autodesk has expanded from CAD software to applications for managing projects and workflows.
Like other companies in the software-as-a-service, or SaaS, space, Autodesk is capitalizing on the digital transformation trend.
“For every company like Snapchat, Airbnb or Uber that’s born in the cloud, there are a thousand companies that weren’t,” Oliver said. “And those companies have to manage their businesses increasingly digitally. They need to know how to market to, reach, sell to, communicate with and service their partners and customers digitally.”
“This is a generational type of opportunity,” Oliver said. It has sparked a “massive investment cycle” that’s still in the early stage, he said.
While Autodesk has a secular growth story, it has end markets that are cyclical and subject to macroeconomic concerns. Those markets include architectural design, construction and manufacturing. For now, worries about a possible global recession have eased, Oliver says.
Focused On Results
Investor focus is on Autodesk’s fourth-quarter report. The company expects to earn 42 cents a share on sales of $707 million in the December-ended quarter. In the yearearlier period, Autodesk lost 9 cents a share on sales of $554 million.
Autodesk has posted accelerating earnings growth for three straight quarters. Sales growth has accelerated the last two quarters.
Meanwhile, Autodesk is on the lookout for more acquisitions to fuel its growth.
“We’ve been an acquisitive company,” Anagnost said on a Nov. 20 conference call with analysts. “We’re going to make disciplined choices between inorganic and organic execution over the next five years in all of the new markets we’re participating in. Construction being the first, manufacturing not being immune either.”
Autodesk is one of four main players in the CAD software market. The others are PTCPTC , Siemens PLM Software and Dassault Syste-