Adobe Likely Has More Earnings Upside In Its Future

Adobe Systems Incorporated ADBE has been a strong performer, consistently delivering upside, relative to expectations.

Offering a more positive touch to the company's performance, an analyst at UBS said there could be more earnings upside in the future.

The Analyst

UBS analyst Jennifer Swanson Lowe..

The Rating

Initiated Adobe Systems with a Buy rating and a 12-month $217 price target.

The Thesis

Adobe's revenues are estimated to grow at a CAGR of 18 percent over the next three years, Lowe said in a note. The company's efficient cost structure suggested that for every dollar added to the top line, 55-60 cents will flow through to operating profit, the analyst added.

See Also: Adobe Remains A Top Large-Cap Pick With Analysts

Adobe is unlocking value beyond the base, Lowe said, with net new customers having roughly doubled over the past two years. This is in contrast to the initial period, when subscriber growth came from migrations within the existing base.

"We think the ongoing success with offerings like Photography SKU can help Adobe drive growth beyond the traditional Creative installed base, while price increases and the upselling of premium offerings can mitigate the ARPU drag from lower-priced offerings," Lowe added.

UBS is modestly ahead of the consensus for 2019 revenues and materially ahead of consensus for the year's earnings per share.

"We see revenue and EPS beats driving estimates higher and sustaining the current multiple in future periods, and rate the shares Buy," UBS concluded.

Price Action

At time of writing, Adobe shares were down 1.5 percent at $181.22.