Adobe a `Durable EPS Growth Story' - Morgan Stanley Lifts Target

A Morgan Stanley analyst boosted his share-price target for Adobe to $450 from $410, calling the graphics-software icon a "durable EPS growth story."
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A Morgan Stanley analyst boosted his share price target for Adobe (ADBE) - Get Report 10% to $450 from $410, saying the graphics-software company's longer-term growth story is "better than most."

Shares of the San Jose, Calif., parent of the Creative Suite, Photoshop image-editing software and Adobe Flash for multimedia content at last check were down 2.4% to $343.10.

Analyst Keith Weiss, who maintains an overweight rating on Adobe's stock, said in a note to clients that "within a environment of growing macro uncertainty and a software universe where hypergrowth stories still screen very expensive, we find much more attractive risk/rewards in durable EPS-growth stories."

Adobe "fits squarely in that category," Weiss added.

Adobe, Weiss said, has leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media and marketing automation.

"As such, we see the longer-term growth story for ADBE as better than most," Weiss wrote.

The analyst said that durable annual recurring revenue growth in Adobe's core digital media segment, combined with improving efficiency in digital experience, sets up the company well "for a return to more robust positive earnings-per-share revisions throughout fiscal 2020-2021 compared to fiscal 2019, a dynamic that's still not fully appreciated by investors."

Weiss views the company's digital media business as one of the premier assets within software, given pricing power and limited competition, recent 20%-plus growth in annual recurring revenue and 55% to 60% segment margins.

"With the segment demonstrating an accelerating pace of beats throughout 2019 and a strong consumer wallet [bolstering] marketing spend, we see good momentum behind Adobe's core earnings growth engine," Weiss said.

Adobe is now largely past the accounting impacts of recent acquisitions, Weiss said.