Argus Boosted Its Adobe Price Target: Here's Why

In a report rolled out Monday, Wall Street research firm Argus reiterated a Buy rating on shares of Adobe Systems Incorporated (NASDAQ: ADBE), while raising its price target from $85 to $95, after the company announced strong fiscal second quarter results.

The company beat consensus estimates and reported results at the high end of its guidance range, with robust sales and double-digit earnings growth despite FX headwinds.

In spite of the increase in the price target, the firm maintains its respective fiscal 2015 and fiscal 2016 non-GAAP EPS estimates of $2.08 and $3.11. Management, for its part, reiterated its earnings guidance of $2.05 per share for 2015, but lowered its full-year revenue guidance by $50 million anticipating that FX will continue to impact on results over the second half of the year.

According to the research note, Adobe is undergoing a transition from a perpetual-license business model to a software-as-a-service model. This transition has put pressure on sales over the last couple of years. However, the analysts expect revenue to surge over 2015 and 2016 as the company shapes up its subscription businesses.

“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 Microsoft Corporation (NASDAQ: MSFT) to Publicis Group (OTCMKTS:PUBGY), to drive further growth.”

Furthermore, the experts provide another reason for the price target increase: Adobe’s valuation metrics are generally in line with peers and, many times, below them. "We think that sales and earnings have been artificially depressed by the change in the company’s business model, which could skew valuation metrics higher," they said.