HSBC downgrades Autodesk on moderating earnings growth, valuation concerns

Investing.com -- HSBC downgraded Autodesk Inc (NASDAQ:ADSK) to “hold” from “buy” as it expects moderating earnings growth and valuation concerns relative to peer Dassault Systèmes. Brokerage also lowered its target price on the stock by $9 to $290.

HSBC (LON:HSBA) noted that Autodesk's valuation is at a premium, trading at 35.1 times its 2025 expected earnings, compared to a sector median of 30. By contrast, Dassault Systèmes is trading at a lower 23.5 times earnings, despite comparable growth prospects and significantly better margins.

While Autodesk’s third-quarter results slightly exceeded Wall Street expectations, they fell short of HSBC’s estimates, note highlights.

The company reported its revenue rise 11% to $1.57 billion, roughly in-line with consensus estimates of $1.564 billion but below HSBC's $1.591 billion. Adjusted operating margins declined by 2.19% on a year-over-year basis to 36.5%, impacted by timing differences from the Autodesk University.

The company has raised its full-year guidance, now projecting fiscal 2025 revenue of $6.123 billion and adjusted earnings per share of $8.32, in line with consensus estimates.

Autodesk's heavy reliance on share-based compensation, accounting for 11.2% of revenue compared to Dassault's 3.8%, also weighed on HSBC's view. " We also note that if we treat share-based compensation as an expense Dassault Systemes has significantly better margins," the note said.

HSBC's price target implies an 8.8% downside for Autodesk shares.