JPMorgan: Buy Adobe

In a report published Thursday, JPMorgan analysts initiated coverage of

with an Overweight rating and a price target of $91. "We believe the subscription transition is a TAM-expanding move, and even though it may ultimately dilute the ARPU from the original $40 target, the larger subscriber base should drive revenue, earnings, and, most importantly, cash flow to levels above expectations. In addition, the digital marketing space is early in its secular adoption, and despite a large number of competitors we see ADBE being able to grow this segment > 20% for at least the next five years." The analysts expect an inflection in the reported P&L metrics in the August quarter, which should attract "another wave of investors" who typically look out for the P&L inflection. Upside to Adobe's stock would be driven by progress toward achieving subscriber milestones. If the company is able to achieve sequential increases in subscriber additions through the rest of FY15 and reach its goal of ~6M subs by the end of the year, the stock is likely to rise "as investors gain more confidence in the remaining runway for Creative Cloud," the analysts wrote. The Digital Marketing segment, which contributed about 34 percent of annual revenue, is in the "early stages of secular adoption." Although this space has stiffer competition than Adobe's traditional solution segments, the company's brand, execution and "wherewithal to consolidate through acquisition are competitive advantages" should support annual growth of at least 20 percent in Marketing Cloud revenue.