Coverage on this tech company’s shares were recently initiated at both Canaccord Genuity and Dougherty & Company, with ‘Buy’ ratings. The company beat analysts’ estimates by five cents last quarter, and 23 analysts have raised their earnings forecasts in the past 30 days.
Adobe Systems Inc (ADBE)
From Argus Weekly Staff Report
We are maintaining our BUY-rating on Adobe Systems Inc. (ADBE) to a target price of $110. As Adobe transitions from a perpetual-license model to a cloud based software-as-a-service model, the company’s recent string of stellar quarterly reports indicate traction in its strategy with strong growth in both financial metrics including sales and profitability, and in operating metrics like subscription growth.
Apart from the quickening pace of organic product rollouts, the company is making small tuck-in acquisitions to bolster its software service offerings and partnering with a host of industry leaders, from Accenture to Publicis Group, to drive further growth.
ADBE’s valuation metrics are only modestly above peer averages. ADBE shares are up 23% in the last year, compared to a 2% decline for the S&P. Year-to-date, ADBE has been about level with the market. Adobe again topped consensus projections and beat its own 1Q16 guidance. Results reflected strong sales and high double-digit earnings growth despite foreign exchange headwinds.
On March 17, the market reacted to the company’s revised guidance and strong 1Q16, by driving ADBE up 6% in after-hours trading.
The trailing enterprise value/EBITDA multiple of 33 is slightly above the peer median of 30. The forward P/E of 34 is well below the peer median of 49. Adobe’s forward enterprise value/EBITDA multiple of 19.4 is 21% above the peer average, again slightly above the average premium of 16% over the past two years.
The first quarter provided further evidence of a building sales and profitability ramp which should support share price appreciation in the intermediate term. We are raising our FY16 EPS estimate to $2.85 from $2.75 and our FY17 forecast to $3.54 from $3.53. Our FY16 estimate is above management’s upwardly revised guidance of $2.80.
We are maintaining our BUY rating on Adobe to a target price of $110.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425- 7500, March 25, 2016