This big tech company beat analysts’ estimates by $0.10 last quarter, and Wall Street now expects the stock to rise between $177 and $213.
Adobe Systems (ADBE)
From Canaccord Genuity Research
This week we attended Adobe MAX, Adobe Systems (ADBE) creativity conference, in Las Vegas. While the conference provided new product announcements and updates, the focus of the analyst day portion, at least from an attendee perspective, was to hear about new financial targets as well as to get an update on the Experience Cloud business following last quarter’s bookings weakness.
We were pleased to see F18 revenue growth guidance that was largely in line and impressed with profitability guidance that was well ahead of expectations. This guide was well received given the stock’s 8% AH pop, and we continue to believe that Adobe’s prospects and reasonable valuation at 22x C18E FCF mean it is poised to continue outperforming. BUY.
Adobe MAX. This was the largest ever MAX, with 12,000+ attendees including designers, illustrators, photographers, video creators, etc. This event clearly highlighted our view that Adobe is the premiere vendor among content creators, which helps make the company unique in its approach to the digital marketing space—a key differentiator and aspect of our positive outlook on the company.
Adobe used the conference to highlight its newest and biggest release of Creative Cloud with many key products getting updates and several newer products moving out of Beta to General Availability. Aside from specific product announcements, the key thematic takeaways were 1) Adobe’s breadth of products in the Creative Cloud ensures that no other vendor can offer the level of integration to creatives that Adobe can; 2) Adobe understands that the creative process is evolving and is taking the steps to allow users to be creative whenever and wherever needed; and 3) Sensei is powering advanced functionality across Adobe’s 3 clouds and with the Creative Cloud in particular, is helping speed up otherwise time consuming processes allowing users to spend more time where they can shine—in being creative.
During the financial analyst session, Adobe provided an update on its TAM, which is now expected to grow to $83B by 2020, which is up from the $64B in 2019 that was shared last year. In terms of guidance, preliminary F18 revenue growth is expected to be 20%, for total revenue of $8.7B, which is largely in line, but with upside in profitability as EPS is expected to grow 30% y-o-y to $5.50, which is ahead of our $5.10 estimate. Further, operating margins are expected to return to peak levels seen in 2008 at around 40%.
We are increasing our price target by $15.00 to $185.00, which is based on a 22x EV/FCF multiple applied to our C2019 estimate of $3.86B and assuming $5.7 in prospective net cash and assumes ~500M fully diluted shares outstanding.
Richard Davis, CFA, David Hynes Jr., and Mark Belcarz, CFA, Canaccord Genuity Research, www.canaccordgenuity.com, October 19, 2017