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On Jun 18, 2013, Zacks Investment Research downgraded Autodesk Inc. (ADSK - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The downgrade primarily reflects Autodesk’s dismal first quarter 2014 result as well as the gloomy outlook that lowered estimates. The company reported earnings (including stock based compensation) of 31 cents per share, which lagged the Zacks Consensus Estimate by 4 cents.

Revenues decreased 3.1% year over year to $570.4 million, which also failed to beat the Zacks Consensus Estimate of $586 million. Significantly, revenues declined in all regions, with Asia Pacific down 3.0% from the year-ago quarter, EMEA down 4.0% year over year and the Americas down 3% year over year in the reported quarter.

The decline in revenue base had a negative impact on margins. Gross margin contracted 160 basis points, while operating margin declined 60 bps from the year-ago quarter.

The disappointing result pushed Autodesk to revise fiscal 2014 outlook. The company  lowered its revenue growth guidance to 3.0% from 6.0% for 2013. Autodesk expects operating margins to expand 50 - 100 bps, down from the earlier forecast of a 125 - 150 bps expansion compared to fiscal 2013.

For the second quarter, Autodesk expects revenues in the range of $550.0 -$570.0 million and earnings of 39 - 44 cents per share.

The Zacks Consensus Estimate for the second quarter of 2014 declined 23.8% (10 cents) to 32 cents over the last 30 days.

The Zacks Consensus Estimate for 2014 decreased 9.0% (15 cents) to $1.52 per share over the last 30 days. The Zacks Consensus Estimate for 2014 dropped 10.5% (21 cents) to $1.79 per share over the same period.

Other Stocks to Consider

Not all software providers are performing as poorly as Autodesk. We recommend SAP AG (SAP - Analyst Report) and Pegasystems (PEGA - Snapshot Report), as both have a Zacks Rank #1 (Strong Buy). Dassault Systemes SA (DASTY)), which has a Zacks Rank #2 (Buy) is also looking good at present.

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