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Breaking Down Adobe's New Guidance

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Breaking Down Adobe's New Guidance
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Adobe Systems Incorporated (NASDAQ: ADBE) announced Wednesday an update to its 2018 outlook which helped boost the stock higher by more than 7 percent during Thursday's pre-market trading session.

Adobe's preliminary fiscal 2018 earnings per share guidance of $5.50 not only represents a 31 percent year-over-year growth rate but came in ahead of the Street's estimate of $5.20 per share, Morgan Stanley's Keith Weiss said in a research report. However, the analyst is turning bullish on the company and maintains an Equal-weight rating on Adobe's stock with an unchanged $155 price target as the 2018 outlook still falls short of his estimate of $5.55 per share.

Nevertheless, Adobe's 30-percent growth profile for 2018 at the very least is good enough to sustain the stock's current multiple of 28x 2018 EPS. The guidance also signals to investors that the company's migration to a subscription-based business model is tracking in line or even ahead of prior expectations.

Also, the guidance shows that Adobe's Creative Cloud is "modestly" expanding its user base given an outlook for a more than 20 percent revenue growth from fiscal 2015 through 2018, the analyst said. Digital Marketing is also expected to a show a 19 percent growth rate and scale in subscriptions will drive operating margin leverage and margin increases to 41 percent in fiscal 2018.

At time of publication, shares of Adobe were up 9.32 percent at $167.27.

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Latest Ratings for ADBE

DateFirmActionFromTo
Nov 2018NomuraInitiates Coverage OnBuy
Oct 2018WedbushInitiates Coverage OnNeutral
Oct 2018BarclaysMaintainsOverweightOverweight

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