Despite a recently slumping stock price, architectural design-software firm Autodesk
Wall Street Wisdom:
- General consensus. Fourteen analysts do paperwork on Autodesk. Five of them rate the stock a buy, nine more a hold, but no one a sell.
- Revenues. Revenues for the fourth quarter of 2005 are believed to have increased 16% year over year to $413.8 million.
- Earnings. Analysts project that profits will do even better, rising 17% to $0.35 per share.
Margin watch:
It's no secret that software firms have great margins. The great Bubble burst notwithstanding, long-term investors in Microsoft
|
Margins % |
7/04 |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
|---|---|---|---|---|---|---|
|
Gross |
85.9 |
86.1 |
86.3 |
86.7 |
87.3 |
88.1 |
|
Op. |
18.2 |
19.8 |
21.2 |
22.9 |
24.0 |
24.9 |
|
Net |
14.6 |
18.2 |
18.0 |
19.8 |
21.0 |
21.3 |
Foolish lookout:
Three months ago, Autodesk's CEO Carol Bartz said she was "very confident" about the firm's future, and backed that sentiment up with raised guidance for the fourth quarter. The stock market is now discounting the firm's chances of meeting estimates tomorrow. I think that's a mistake. Autodesk has beaten analyst estimates for 25 straight quarters, and the firm has issued no earnings warning since it last raised guidance. Considering the trends in Autodesk's margins, and its record of more than six years of success, I see little reason to expect Autodesk to stumble tomorrow.
Valuation metrics:
Autodesk sports a premium multiple even after the recent share price weakness: 30 times trailing earnings. But on a cash profits basis, the firm trades for just 21 times free cash flow, yet boasts a return on equity of twice that, alongside a rock solid balance sheet holding $550 million in net cash. Is Autodesk a steal? No. But is it a great company at a good price? Absolutely.
Microsoft is a Motley Fool Inside Value recommendation.
Fool contributor Rich Smith does not own shares of any company named above.