3 Reasons Wedbush Downgraded Autodesk

Autodesk, Inc. ADSK's reported third quarter earnings Tuesday, leaving some investors and Wall Street analysts concerned with the results.

The Analyst

Wedbush's Steve Koenig downgraded Autodesk's stock rating from Outperform to Neutral and lowered the price target from $138 to $126.

The Thesis

Now may be the time for investors to step to the sidelines after Autodesk's earnings report contained multiple concerning metrics, Koenig said in a Wednesday note. (See Koenig's track record here.) 

Koening singled out the following three areas of concern: 

• A "surprisingly slow" ramp in free cash flow, which calls into question management's long-term targets.
• The potential for higher attrition from planned maintenance price increases.
• Higher-than-expected investments in digital infrastructure and cloud offerings.

Autodesk did report an acceleration in annualized recurring revenue, and there is no reason not to expect an improvement in cash flow next year, the analyst said.

An increased risk exists of a "meaningful shortfall" to management's free cash flow target of $6 per share in fiscal 2020, Koenig said. In fact, over the coming years, visibility to this target will "likely remain clouded" as the company's shift to an annual billing model that would pressure its enterprise contract billings for several quarters to come, he said. 

Autodesk's stock has benefited over the past few months from "heightened expectations," but the thesis has now changed — although the analyst said he may "become more positive at a better entry point."

Price Action

Shares of Autodesk were trading lower by more than 17 percent Wednesday morning.

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