Adobe Now Worth $90/Share, But We're Lowering Q3 EPS Estimates, KeyBanc Says

In a report published Wednesday, KeyBanc Capital Markets analyst Brendan Barnicle maintained an Overweight rating on Adobe Systems Incorporated ADBE, while raising the price target from $85 to $90, after the company reported strong F2Q results. "After disappointing new subscriber additions in FQ1, Adobe reported 639,000 new subscribers in FQ2, much better than the expectation of 575,000. More importantly, annual recurring revenue (ARR) was $2.02 billion, better than the expectation of $2 billion, and the company raised ARR guidance," analyst Brendan Barnicle said. Adobe indicated that APRU declined at the smallest rate in several quarters. Despite currency headwinds, the company was able to record FQ2 revenue of $1.16 billion, in-line with expectations, and EPS of $0.48, ahead of the estimate of $0.45. Marketing Cloud generated revenue of $366.5 million, missing the expectation of $378.0 million. However, Marketing Cloud bookings were solid. Adobe projected 30 percent growth in Marketing Cloud bookings, despite currency headwinds. "Marketing Cloud revenue has been less consistent than Creative Cloud revenue, but the company is heading into the seasonally strong period for Marketing Cloud," Barnicle pointed out. KeyBanc Capital Markets raised the FCF estimate for FY16 from $2.57 to $2.87, based on the FQ2 cash flow upside. Although the FQ3 EPS estimate has been reduced, the FY16 EPS estimate remains $2.10, ahead of the guidance of $2.05.