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# Is Autodesk, Inc. (NASDAQ:ADSK) Worth US\$134 Based On Intrinsic Value?

Does the December share price for Autodesk, Inc. (NASDAQ:ADSK) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value by taking the expected future cash flows and discounting them to today’s value. I will be using the Discounted Cash Flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. If you want to learn more about discounted cash flow, the basis for my calcs can be read in detail in the Simply Wall St analysis model. If you are reading this and its not December 2018 then I highly recommend you check out the latest calculation for Autodesk by following the link below.

### The method

I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount this to its value today and sum up the total to get the present value of these cash flows.

#### 5-year cash flow forecast

 2019 2020 2021 2022 2023 Levered FCF (\$, Millions) \$215.41 \$1.35k \$1.72k \$2.06k \$2.34k Source Analyst x13 Analyst x15 Analyst x12 Analyst x6 Analyst x5 Present Value Discounted @ 11.37% \$193.41 \$1.09k \$1.24k \$1.34k \$1.37k

Present Value of 5-year Cash Flow (PVCF)= US\$5.2b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after the five years. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.9%. We discount this to today’s value at a cost of equity of 11.4%.

Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = US\$2.3b × (1 + 2.9%) ÷ (11.4% – 2.9%) = US\$29b

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US\$29b ÷ ( 1 + 11.4%)5 = US\$17b

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US\$22b. To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR. This results in an intrinsic value of \$100.07. Compared to the current share price of \$133.87, the stock is rather overvalued and not available at a discount at this time. NasdaqGS:ADSK Intrinsic Value Export December 12th 18

### Important assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don’t have to agree with my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at Autodesk as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I’ve used 11.4%, which is based on a levered beta of 1.195. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

### Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For ADSK, I’ve compiled three important factors you should look at:

1. Financial Health: Does ADSK have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Future Earnings: How does ADSK’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of ADSK? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks just search here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.