Adobe Systems Q3 Results Show New Strategy Gaining Traction

Manikandan Raman
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Argus raised its price target on shares of Adobe Systems Incorporated (NASDAQ: ADBE) by $17 to $127 as the strong quarterly results suggest the company's transition from a perpetual-license model to a cloud-based software-as-a-service model is gaining traction.

Investors enthusiasm was little bit tempered when management was cautious about FY 2017, noting the company's strong growth requires significant investment in both sales force expansion and R&D.

"While increased investment could slow margin expansion and disappoint the Street in certain quarters, we think that Adobe's overall consistent revenue and earnings momentum is a strong positive. We also note that management has typically underpromised and overdelivered," analyst Joseph Bonner wrote in a note.

View more earnings on ADBE

Related Link: Analysts Mixed On Adobe Following Q3 Results, Outlook

Bonner, who maintained his Buy rating on the stock, raised FY 2016 EPS estimate to $2.99 from $2.87 and FY 2017 forecast to $3.61 from $3.56. The analyst's FY16 estimate is near the high end of management's range of $2.94-$3.00 and implies 32 percent EPS growth over the next two years.

"The company's continued strong revenue and margin momentum show the wisdom of changing the business model as well as management's successful implementation of the new model. Management gets high marks for making and then reaching or exceeding its growth targets," Bonner noted.

The analyst's revised target of $127 implies a multiple of 35-times his FY17 EPS estimate, and a potential gain of nearly 18 percent from current levels.

Latest Ratings for ADBE

Sep 2016

Argus Research

Maintains

Buy

Sep 2016

UBS

Maintains

Buy

Sep 2016

Pacific Crest

Maintains

Overweight

View More Analyst Ratings for ADBE
View the Latest Analyst Ratings

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