Autodesk (Nasdaq:ADSK) is a great company, but tech stock investors don't care nearly as much about "great company" as they do "lots and lots of growth." Unfortunately, Autodesk is something of a victim of its own success in that regard, and the company is now seen as inextricably tied to overall global macroeconomic growth. While a discounted cash flow analysis suggests that Autodesk shares are significantly undervalued, value-oriented investors need to know that realizing that value is going to likely take quite some time.

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Mixed Results Sour Q1 Results
Autodesk's first quarter results don't look bad at all on first glance, but there are a few details here and there that seem to be weighing on the Street's sentiment about them.

Revenue did rise more than 11% from last year, and declined just 1% on a sequential basis. License revenue rose almost 12% as reported, and maintenance revenue rose 11%. Suite revenue continues to come along nicely, growing 34% this quarter.

Unfortunately, maintenance billings up were up a lot less (about 1%), and sluggish performance in Europe (up 4%) overshadows the double-digit growth in North America and Asia.

Autodesk has long posted good margins, and this quarter was no exception. Gross margin was basically even with the year-ago and fourth quarter at about 90%. Operating income, though, rose 20%.

Less Optimism About the Macro Picture
I suspect that a fair portion of the skepticism on Autodesk is tied to economic issues well out of their control. Europe is clearly weakening and the recent dip in the ABI below 50 suggests that commercial real estate in North America isn't in the clear yet.

To that end, management did issue somewhat iffy guidance for the second quarter, guidance that points to a more back-end-loaded 2012. Companies ranging from IBM (NYSE:IBM) to Siemens (NYSE:SI) to General Electric (NYSE:GE) have been echoing this same sort of outlook, but that doesn't mean the Street wants to hear it. What's more, the company drew down its backlog to some extent, heightening some of the risk as the year develops.

SEE: Can Earnings Guidance Accurately Predict The Future?


The Bull Story Is Well Known
Part of the bad news on Autodesk is that the bull story hasn't changed much in years. Autodesk's AutoCAD is basically the standard in CAD/CAM and has been for quite some time. Moreover, the company has been smart in partnering with colleges and vocational schools and seeing that young engineers and architects train on its software from Day One. So not only are competing offerings from Dassault (OTCBB:DASTY) and Parametric (Nasdaq:PMTC) often more expensive anyway, but the retraining costs can be substantial.

Along the way, Autodesk hasn't gotten cute or especially ambitious; there haven't been any questionable new business expansions or acquisitions. Instead, the company takes incremental steps like the introduction of a cloud-based system or the suite concept.

The Bottom Line
Autodesk clearly isn't insulated from the global economic situation - revenue dropped significantly from 2008 to 2009 and hasn't yet regained the former peak. Still, emerging markets continue to adopt more sophisticated design and production methodologies, including digital machine tools and CAD/CAM software. Moreover, there are ongoing update and refresh cycles that keep pulling revenue from the existing customer base.

Autodesk seems to trade at a real discount to its cash flow-based value. Even as revenue growth slows from the double-digit pace of the past decade and free cash flow follows, this company should continue to accumulate cash that it can return via dividends and buybacks. While macroeconomic worries may keep these shares down during the summer, patient value-hounds may want to invest the time in some due diligence here.

SEE: Understanding Free Cash Flow (Video)


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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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