Stephens Turns Bullish On Adobe: 3 Reasons Why

Adobe Inc ADBE reported second-quarter results Tuesday that prompted Stephens to adopt a bullish stance on the software maker. 

The Analyst

James Rutherford upgraded Adobe from Equal-Weight to Overweight with a price target lifted from $288 to $327.

The Thesis

Adobe reported a "strong quarter" with three notable takeaways that support a bullish stance on the stock, Rutherford said in a Wednesday uprade note. (See his track record here.) 

First, the digital media business posted an annual recurring revenue beat, which may alleviate concerns that high levels of existing market penetration could cause a slowdown in the business, the analyst said. 

This is unlikely to happen in the near-term, as Adobe's report showed broad-based strength, as evidenced by year-over-year revenue growth north of 20%, he said. 

Second, the recently acquired Marketo and Magento businesses are "starting to move the needle," Rutherford said.

Firsthand checks with partners — coupled with Adobe's commentary during the post-earnings conference call — suggest Marketo and Magento are "starting to make headway" in cross-selling across Adobe's existing base, the analyst said. 

Third, Adobe's third-quarter guidance was a "touch light," but the company beat first- and second-quarter revenue expectations by a combined $100 million, he said.

Yet Adobe hasn't adjusted its full-year guidance to the upside despite the strong momentum across the business, according to Stephens. 

The sell-side firm said Adobe should show a ramp in margins from 38.3% to 43.2% at the end of the year.

Price Action

Adobe shares were up 2.29% at $297.88 at the time of publication Thursday. 

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