Autodesk Consensus Is Wrong, Earnings Power Better Than Expectations, Credit Suisse Says

In a report published Monday, Credit Suisse analyst Philip Winslow argued that Street estimates for

are "too high" while the company's fiscal 2018 guidance is "unachievable." According to Winslow, the Street's fiscal 2017 and fiscal 2018 estimates (along with management's own guidance) does not properly reflect the negative medium-term pressure from the company's transition to a subscription business model (announced on October 1 at its annual Investor Day) on revenue, operating profit and cash flow. In fact, the analyst suggested that the company is likely to report operating losses in both fiscal 2017 and 2018. Winslow continued that Wall Street analysts have "struggled" with calculating Autodesk's "normalized" revenue run rate and earnings per share following its transition. In fact, the company's situation does not compare to

's "straightforward" post-transition revenue calculation whereby subscribers multiplied by average revenue per user equals revenue. The analyst continued that he created his own complex "Model Transition Toolbox" that better accounts for the company's revenue base. His calculations suggested that recognized revenue and operating profit would be "depressed" in the company's new subscription model (versus its traditional license and maintenance model) through fiscal 2019. In fact, the recognition of new perpetual license revenue will essentially drop to $0 in fiscal 2018. As such, Winslow stated that the company's operating margin in fiscal 2018 will fall "meaningfully" below the company's 30 percent guidance and the company's management will need to revise its guidance lower. However, once the company clears fiscal 2018, earnings per share is expected to surge to $8.00 in 2023, representing a compounded annual growth rate of 34.2 percent from fiscal 2016. By comparison, under the old licensing model, the analyst estimated the company's 2023 earnings per share would be just above $2.00, representing an 11.0 percent compounded annual growth rate. As such, shares remain Overweight rated with a price target raised to $80 from a previous $75.