PacCrest Says Autodesk Could Boost FCF To $5-$7 By 2018

In a report published Tuesday, Pacific Crest Securities analysts maintained an Overweight rating on Autodesk, Inc ADSK, with a price target of $81, saying that the company's FCF could expand to $5-$7 by 2018. Autodesk is transitioning its model to subscriptions. The company has offered limited guidance related to the transition so far, and could provide more guidance through the year. The analysts assume that 80 percent of license revenue will transition to subscription revenue in F2017 and F2018. The license revenue that transitions to subscription revenue is expected to be at a discount of 60 percent. The revenue would be recognized 60 percent as term licenses and 40 percent as subscriptions. In the report Pacific Crest Securities noted, "Those new contracts will be one-year deals that will be recognized ratably over the year. We have created waterfalls for the revenue and deferred revenue. Our F2016 FCF increases for stock-based compensation, but decreases for F2017 for lower F2017 net income and lower F2017 billings assumptions." Autodesk's model suggests FCF of $6.41 in 2018. In case the company meets its prior FY18 guidance, there should be upside to the analysts' FCF estimates. If the company generates 30 percent operating margin in F4Q18 and a 12 percent CAGR in billings, it should be able to generate FCF of $6.41 in 2018. "It seems unlikely that the company will be able to meet its original guidance. Later this year, the company may have to lower its long-term targets, but it might be able to provide a clearer FCF outlook," the analysts said. Channel checks indicate that resellers have benefited from "the extension of the upgrade program through February," the analysts commented, while adding, "We will check back toward the end of this month." "Based on our initial model, the company could earn as much at $5.21 in FCF in C2018. Based on the company's F2018 guidance of 12% CAGR in billings and 30% operating margin, FCF could be almost $7. Either way, the risk/ reward for ADSK looks attractive," the report added.