Adobe An 'Elite' Cloud Software Player, KeyBanc Says After Q3 Print

Adobe Systems Incorporated ADBE reported fiscal third-quarter earnings Thursday afternoon that make its status as an "elite" cloud software company clear, according to KeyBanc Capital Markets. 

The Analyst

Analyst Brent Bracelin maintained an Overweight rating on Adobe Systems with a price target lifted from $276 to $286.

The Thesis

Adobe's fiscal Q3 is highlighted by a 58-percent increase in profit and a 24-percent revenue growth, Bracelin said in a note. (See his track record here.)

Strength in the quarter came from 28-percent growth in Creative Cloud, which now accounts for 59 percent of total sales versus 47 percent three years ago, the analyst said. 

More important to the bull case, Adobe continues to show strong and consistent execution of 20-percent growth with margins of 40 percent or more, Bracelin said. The company is a "juggernaut," with a cloud business approaching $5 billion in revenue — which could double to $10 billion within just two years, he said. This makes Adobe's stock a core cloud holding, even in the "second decade of SaaS."

KeyBanc's revised $286 price target is based on an EV/FCF multiple of 28.5 times 2019 estimates. Under a bull case scenario, the stock could rise to $330 — a 30 times multiple — if the company's market share accelerates more than expected within the untapped $31-billion marketing cloud sector, Bracelin said. 

Price Action

Adobe shares were trading up 0.18 percent to $269 premarket Friday.

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