On Aug 28, 2013, Zacks Investment Research downgraded Autodesk Inc. (ADSK) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The downgrade primarily reflects declining top-line growth in the second quarter. Although earnings of 35 cents comfortably beat the Zacks Consensus Estimate by 4 cents, revenues of $561.7 million just managed to beat the Zacks Consensus Estimate of $561.0 million.
Revenues declined for the second straight quarter (down 1.2% in the second quarter), primarily due to a downturn in some of the company’s end markets, which negatively impacted the company’s products like AutoCAD and AutoCAD LT in the quarter.
Significantly, revenues declined in Asia Pacific (down 1.0% from the year-ago quarter) and EMEA (down 4.0% year over year), partially offset by the Americas (up 2.0% year over year) in the reported quarter.
The decline in revenue base had a negative impact on margins. Gross margin contracted 160 basis points (bps), while operating margin declined 100 bps from the year-ago quarter.
For the third quarter, Autodesk expects revenues in the range of $540.0 - $555.0 million and earnings of 36 - 40 cents per share. A sluggish demand environment, increasing challenges in emerging markets and shift towards a subscription and rental based model are expected to hurt top-line growth in the near term.
The Zacks Consensus Estimate for the third quarter of 2014 declined 34.1% (14 cents) to 27 cents per share over the last 60 days.
The Zacks Consensus Estimate for 2014 decreased 17.8% (27 cents) to $1.25 per share over the last 60 days. The Zacks Consensus Estimate for 2015 plunged 29.6% (53 cents) to $1.26 per share over the same period.
Other Stocks to Consider
Not all software providers are performing as poorly as Autodesk. We recommend Dealertrack Technologies (TRAK) and eGain Corp (EGAN), as both have a Zacks Rank #1 (Strong Buy). Dassault Systemes SA (DASTY), which has a Zacks Rank #2 (Buy), is also looking good at present.
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