Adobe (ADBE) - Get Adobe Inc. Report is "one of the crown jewels of software," a Wells Fargo analyst said Monday as he initiated coverage of the company with an overweight rating and a $770 price target, one day before software giant is scheduled to report third-quarter earnings.
Shares of the San Jose, Calif., company were down 2.2% to $640.39 at last check.
"We view Adobe as one of the crown jewels of software," analyst Michael Turrin said in a research note.
Turrin cited the company's "solid core positioning as the de facto toolkit for creatives," as well as the total-addressable-market or TAM-expansive digital tailwinds tied to experience, and best in-class financial profile of 20+% revenue growth and 40+% free cash flow margin.
"While shares have steadily compounded," the analyst said, "we see a path for 20+% EPS expansion far into the future which, alongside multiples we still view as palatable relative to other premium assets in software, leads us to recommend Adobe as a long-term core holding in any large-cap tech portfolio."
Turin said that Adobe's creative cloud "has proven its place alongside the most valuable assets in all of software, delivering uber-efficient, consistent 20+% growth (at nearly $10B in revenue), and affording Adobe the luxury of experimenting with positioning around additional products/markets."
Analysts surveyed by FactSet expect Adobe to post earnings of $3.01 a share on revenue of $3.89 billion.
Separately, Citi analyst Tyler Radke said he expects Adobe to maintain similar levels of beat and raises in the third quarter, with easy comps in digital experience, low expectations in digital media and the recent trend of solid execution in fiscal 2021, according to the Fly.
While industry inputs suggest "durability of tailwinds" in the front office, with Adobe shares up almost 50% over the last six months, "this may well be priced in," Radke said.
The analyst kept a neutral rating on the shares with a $575 price target saying the digital experience may need more investments to reaccelerate growth to levels in-line with peers.
Last weekseveral analysts raised their price targets for Adobe, including Mizuho's Gregg Moskowitz, who boosted his price target to $695 from $640 and reiterating a buy rating.
The analyst said channel checks "were once again favorable," and he expects Adobe to report "healthy upside" to Wall Street estimates.
The company's "expansive portfolio of software solutions has made it the gold standard in content creation, consumption, and collaboration," Moskowitz said.
In June, Adobe reported fiscal second-quarter results, as well as guidance for the current quarter, that topped analyst estimates.