Software investors may want to consider passing on "hyper growth stories" in favor of a company like Adobe Inc (NASDAQ: ADBE), which offers a "durable" earnings per share growth profile, according to Morgan Stanley.
Keith Weiss upgraded Adobe from Equal-weight to Overweight with a price target lifted from $282 to $340.
Adobe's Digital Media business accounts for 70 percent of the company's total revenue, but the segment's outlook had minimal visibility, Weiss said in a Monday note. (See his track record here.)
Firsthand observations at the company's "Adobe Summit" event, chats with management and a financial analysis of the segment warrant a bullish stance, according to Morgan Stanley.
The Digital Media business could see a deceleration in growth at a faster pace than Street estimates are modeling, Weiss said. The company could benefit from "very natural leverage" across S&M and R&D operating expense categories, he said.
Adobe's Digital Experience could see an acceleration in organic growth and show a better-than-expected revenue growth rate, the analyst said. In addition, the business could show improving segment profits as M&A pressures ease and organic investments are yielding financial benefits, he said.
Adobe's outlook supports a case for 20-percent earnings per share compounded annual growth through fiscal 2021, and this isn't factored into the stock, according to Morgan Stanley.
Adobe shares were trading up 2.17 percent at $288.08 at the time of publication Monday.
Guggenheim: Adobe Summit Focused On Extracting Value From Data
Oppenheimer: Adobe Upbeat About Digital Experience Business Momentum
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|Mar 2019||Downgrades||Overweight||Sector Weight|
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