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Buy Autodesk Ahead of Earnings

Stocks in this article: ADSK MSFT CDNS ADBE

NEW YORK (TheStreet) - Since reaching an intraday high of $58.68 in February, shares of Autodesk (ADSK) have declined almost 20% to $48.22 as of Wednesday at 3 p.m. This has occurred despite the company having posted strong fourth-quarter results. Shares are down 1.9% year to date.

The Street has generally decided to take a wait-and-see attitude, looking for clearer signs that management's restructuring plans can be realized. Even I doubted the stock -- when it was priced much higher. But Autodesk is stronger than some think. 

The good news is, Autodesk management no longer seems content with the company's mature slow-moving growth status. They appear more willing to take the sort of risks needed to reward shareholders. 

At one point, management was being criticized for being unable to identify the company's next strategic move. Not to mention, there were also concerns that the architectural software designer was confused about what phase of growth it was in. 

Things have changed.

Autodesk will reports first-quarter earnings Thursday. The Street will be looking for 21 cents in earnings per share, which would represent a 50% year-over-year decline. The consensus estimate has declined 3 cents over the past 90 days. For the full year, analysts are expecting earnings of $1.15, which calls for a 30% year-over-year decline. But I wouldn't get too bent out of shape about these projected results.

Autodesk is in an important shift in the company's business. Management is working to transition the company's software business to a subscription-based model. Although the transition has progressed well, it has taken a toll on the company's bottom line.

In terms of revenue, the Street will be looking for $568.6 million this quarter. Depending on some estimates, this is flat. But it's nonetheless a slight year-over-year decrease from last year's mark of $570.4 million. For the full year, revenue is projected to roll in at $2.36 billion.

Unlike the earnings, revenue has not been a problem. The company has posted increases in two consecutive quarters, including a 3% jump in the most recent quarter, and Autodesk added a 1% gain in the third quarter. These aren't robust numbers. But as I've said, the company is in the midst of a meaningful business model transition.

To that end, management deserves credit for how well they have navigated a tough IT spending environment. In the midst of this changeover, the company has maintained decent margins despite competition from the likes of Microsoft (MSFT) and Cadence Software (CDNS). And when you factor in the company's tough cost-control initiatives, there is still plenty to like here.

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