KeyBanc Raises Price Target On Adobe By 20%, Cites Cloud, AI

Adobe Systems Incorporated (NASDAQ:ADBE) has proven itself to be a leader in the cloud software market, but some analysts are even more optimistic about the future.

The Analyst

KeyBanc Capital Markets' Brent Bracelin maintains an Overweight rating on Adobe's stock with a price target boosted from $178 to $216.

The Thesis

Adobe is uniquely positioned to continue delivering a 20 percent growth rate and expanding margins over time due to its expanding portfolio of Creative Cloud products, which account for 60 percent of the company's total revenue, Bracelin said in a research report. (See Bracelin's track record here.)

"This segment not only represents the largest moat for Adobe, but also represents its most profitable product category where it faces few competitive threats," Bracelin said.

But the company's focus on increasing the sales mix towards high-margin Digital Media subscription has resulted in consistent margin expansion and the momentum will likely continue into 2018.

Adobe's artificial intelligence unit represents an "underappreciated lever" in 2018 and beyond, the analyst said. The company's recent advances in Sensei will help sustain its high growth rate profile and represents a monetization opportunity, Bracelin said — as incorporated AI technology in existing products would be justified based on higher levels of automation and time savings for end users.

Adobe's stock should be considered "one of the core cloud software platforms to own for 2017 and 2018," the analyst said. 

Price Action

Shares of Adobe have gained nearly 80 percent since the start of 2017.

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Adobe CEO Shantanu Narayen unveils the Adobe Experience Cloud at Adobe Summit 2017 on March 21, 2017 in Las Vegas. Courtesy photo.