Is Adobe's Strong Performance Already Priced In?

While Adobe Systems Incorporated ADBE reported robust Q3 results and raised its Q4 EPS guidance, Morgan Stanley’s Keith Weiss believes the outperformance is already priced into the stock.

Weiss maintains an Equal-Weight rating on the company, while raising the price target from $100 to $110.

FYQ3

Adobe Systems reported a slight beat on revenues for FYQ3 at $1,464 million, representing 20 percent growth and $14 million ahead of the consensus forecast. Operating margins were 50 bps ahead of consensus, at 33.5 percent, while the EPS of $0.75 was $0.03 ahead of consensus.

Related Link: Adobe's Guidance Not Good Enough For A Premium Valuation

“The higher margins are expected to sustain thru to FY4Q, enabling management to lift EPS guidance for the quarter and FY16,” the analyst mentioned.

However, total annual recurring revenue came in at $3.70 billion, in line with the consensus forecast, while management left the FY16 guidance unchanged at $4 billion.

Investments To Continue

Weiss noted that regarding expenses, “CFO Mark Garrett cautioned that while the pace of investment slowed in Q3 (and will be lower again in Q4), the company would be making investments for growth in the coming years.”

Following the Q2 results, the analyst believes the company’s subscription base was building well, although still in line with the consensus.

The year-to-date operating expense growth of 13 percent was also in line with the CFO’s guidance heading into FY16, while the management team indicated that investment growth would continue into FY17 and beyond.

At time of writing, minutes before the regular market open Wednesday, Adobe was up 5.87 percent at $106.53.

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