Morgan Stanley Previews Adobe's Q2 Report, Says 'Solid Beat-And-Raise' Should Revive Stock

Adobe Inc ADBE is scheduled to report second-quarter results Tuesday, and if the company reports a "solid beat and raise,"  shares should get "back on track," according to Morgan Stanley.

The Analyst

Keith Weiss maintained an Overweight rating on Adobe Systems with an unchanged $340 price target.

The Thesis

Adobe's prior two earning reports were highlighted by smaller beats than usual and small guidance raises, Weiss said in a Friday note. (See his track record here.)

Morgan Stanley's firsthand checks show a "healthy customer demand environment" that implies the potential for sustainable 20%-plus annual recurring revenue growth in the second quarter and throughout the rest of the year, the analyst said. 

The Digital Experience segment is also set up well and should account for $122 million in inorganic contributions in the upcoming quarterly report, Weiss said. This would imply 11% year-over-year organic growth in the business — a figure which may prove to be conservative and could likely accelerate through the rest of the year, he said.

Adobe is also likely to return to its historical operating margin level by the end of the year as benefits from accretive acquisitions add up and synergy come to pass, the analyst said. 

Adobe has $7.35 billion remaining in its share buyback authorization, and the pace of buybacks appears to be sustainable through at least the end of the year, Weiss said. 

Adobe can sustain a durable 20%-plus EPS compounded annual growth rate over the coming three years, in Morgan Stanley's view. 

Price Action

Adobe shares were up 0.16% at $276.73 at the time of publication Friday. 

Related Links:

Morgan Stanley Turns Bullish On Adobe, Highlights 'Durable' 20% EPS Growth

Guggenheim: Adobe Summit Focused On Extracting Value From Data