Sell Autodesk On The Earnings Miss, Buy Microsoft Instead

| About: Autodesk, Inc. (ADSK)

After the market closed on Thursday, August 23, 2012, Autodesk (NASDAQ:ADSK) released earnings and guidance,which fell far short of expectations. The company reported earnings of 28 cents per share for the second quarter, which was down from 30 cents in the same period last year. Analysts had been expecting earnings to come in at 49 cents per share, on revenues of $593 million. But the company missed on revenues as well, which were just about $568.7 million.

If that wasn't enough, Autodesk said it would start a restructuring program, which includes job cuts. Additionally, it gave third quarter guidance, which also seems to fall short of current expectations. It now expects earnings to fall between 40 to 45 cents on revenues of $550 to $570 million, while analysts were expecting about $600 million in revenues and earnings of 50 cents per share.

Faced with this new dose of reality, Autodesk shares plunged over 20% to about $27.50 per share in after hours trading. Even at this lower level, the stock does not look cheap. While many investors might be tempted to go "bargain hunting," the stock is likely to underperform for awhile. The next couple of days are likely to bring a number of analyst downgrades and price target reductions.

Autodesk is a great company, and it has a solid balance sheet. This company is a leader in design and 3D software, but it comes down to valuation. Even at about $27.50 per share, the stock still trades for about 17 times earnings, while one of the world's largest software companies, Microsoft (NASDAQ:MSFT), trades for just about 10 times earnings. Furthermore, Microsoft shares offer a solid dividend yield of about 3%, while Autodesk offers no dividend.

Microsoft is expected to earn significantly more than Autodesk on a per share basis, and yet the two stocks trade at for close to $30 per share. That means Autodesk shares could still be too expensive to consider for bargain-hunters. At these levels, Microsoft may be a better value.

Autodesk's recent results and forward guidance shows that sales are slowing, and if you want to see what the market can do to tech stocks that fail to show solid growth, just take a look at Hewlett-Packard (NYSE:HPQ) shares, which now trade for just over 4 times earnings. With this recent miss, and a higher than average valuation, the shares could be poised to test the 52-week lows at around $24.63 in the coming weeks and months.

Key Data Points For Autodesk From Yahoo Finance:
Current Share Price (as of this writing): $35.71 (or about $27.50 in after hours trading)
52-Week Range: $24.63 to $42.69
Dividend: none
2013 (Fiscal Year) Earnings Estimate: $2.02 per share
2014 (Fiscal Year) Earnings Estimate: $2.36 per share
P/E Ratio: about 17 times earnings

Key Data Points For Microsoft From Yahoo Finance:
Current Share Price (as of this writing): $30.25
52-Week Range: $24.26 to $32.95
Dividend: 80 cents per share, which yields 2.6%
2012 Earnings Estimate: $3.02 per share
2013 Earnings Estimate: $3.32 per share
P/E Ratio: about 10 times earnings

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Disclosure: I am long HPQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.