Autodesk Top Pick at Morgan Stanley amid margin opportunity, robust catalyst path

Investing.com -- Morgan Stanley (NYSE:MS) has named Autodesk Inc (NASDAQ:ADSK) stock as its Top Pick, citing a margin expansion opportunity and a robust catalyst path.

The bank analysts see Autodesk shares, which are currently trading at a discount compared to its design software peers, poised for significant upside.

ADSK rose 1% in premarket trading Monday.

Following the company's recent earnings call, where management emphasized its goal of achieving "GAAP margins among the best in the industry," Morgan Stanley delved into Autodesk’s margin potential, concluding that the company is positioned for earnings per share (EPS) growth well above market expectations.

To be more specific, Autodesk’s current GAAP operating margin of 22% is expected to expand to nearly 29% by fiscal year 2028, positioning it at the higher end of its peer group. Morgan Stanley’s pro-forma analysis indicates an 8% upside in non-GAAP EPS for fiscal years 2026 to 2028.

The firm's assessment shows that Autodesk is on track to capitalize on both organic growth opportunities and the accounting benefits from its new Transaction Model, which enhances the company’s revenue recognition and boosts operational efficiency.

“We see a favorable risk/reward opportunity for both EPS and multiple expansion,” Morgan Stanley analysts noted.

Despite external challenges, such as the evolving macroeconomic environment and a focus on cost control, Autodesk’s shift toward greater operational efficiency, including improved sales productivity and the implementation of co-term contracts, is expected to drive sustainable growth.

Analysts also highlighted several other upcoming catalysts for ADSK, including potential tailwinds from a lower interest rate environment and recent activist involvement aimed at improving the company’s execution.

“Upside to EPS, a robust catalyst path and valuation at a discount to peers frames a favorable entry point and a >2:1 bull/bear skew,” analysts emphasized.

They reiterated an Overweight rating on the stock and a price target of $320.