Two Companies Update Their Guidance and Hedge Funds Say You Should Bet on One of Them

Both AT&T Inc. (NYSE:T) and Autodesk, Inc. (NASDAQ:ADSK) were up by less than 1% each in after after-hours trading as the two companies provided updates to their guidance. Based on Insider Monkey’s hedge fund data from the latest round of 13F filings, the smart money like one of these firms more than the other.

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We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 ETF (SPY) by more than 60 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment.

In an 8-K filing on Tuesday afternoon, AT&T Inc. (NYSE:T) reiterated its guidance for its full-year adjusted EPS in the range of $2.62 to $2.68, double-digit consolidated revenue growth, expansion of margin and over 2 million total net adds across all segments for the third quarter of this year. The telecommunications giant also said that it expects free cash flow for the third quarter to be more than $4.5 billion, up from $3.5 billion in the same quarter last year. AT&T also said that it expects positive net additions for DirecTV, which it acquired earlier in July. U-verse subscriptions, however, are forecasted to decline as the firm turns its attention away.

According to Insider Monkey’s data, AT&T Inc. (NYSE:T) registered an outflow of capital from hedge funds during the second quarter, even though the number of funds with long positions went up by six to 49. However, hedge funds collectively owned $1.6 billion worth of the company’s stock, down by 14.64% on the quarter, despite a healthy 8.79% appreciation of the stock. Moreover, the funds we track owned under 1% of AT&T’s outstanding stock. Adage Capital Management, led by Phill Gross and Robert Atchinson, owned 7.44 million shares of the firm at the end of June, up by 31% quarter-over-quarter, while Cliff Asness’ AQR Capital Management reduced its stake in AT&T by 76% and ended the second quarter with 2.07 million shares.

Meanwhile, Autodesk, Inc. (NASDAQ:ADSK) similarly reaffirmed its guidance for the current quarter and for the full year. For the third quarter of its fiscal 2016, it expects revenue to be between $580 million and $600 million, while adjusted earnings per share are expected in the range of $0.05 to $0.10, the firm said. For the full fiscal 2016 year, the firm expects revenue to be in the range from $2.47 billion to $2.51 billion and adjusted earnings between $0.60 and $0.72 per share. Like AT&T, Autodesk believes it will report more net subscription for the full year, setting the forecast in the range of 375,000 to 425,000. Billings are expected to grow anywhere from 2% to 4%. The company’s management continues to believe that their transition from one-time licenses to a subscription model will provide further opportunities for the company, making the 2017 fiscal year an “inflection point” for revenue with financial metrics stabilizing in the 2020 fiscal year.

Hedge funds favored Autodesk, Inc. (NASDAQ:ADSK) during the second quarter, when compared to AT&T, because even though there were 45 hedge funds from our database long Autodesk, down by three over the quarter, the aggregate value of their holdings declined only by 10.90% to $2.25 billion, amid a 14.61% decline of the stock. Moreover, hedge funds owned 19.70% of Autodesk at the end of June. Among these investors, Eric W. Mandelblatt’s Soroban Capital Partners reduced its stake by 2% on the quarter to 10.34 million shares.

Disclosure: None