Street Applauds Adobe Systems

Shares of Adobe Systems ( ADBE) jumped as much as 13% on Friday after the company's latest earnings report reassured investors about the state of its business ahead of an ambitious product-launch schedule.

The company expects to release key products -- such as its Acrobat document creation programs and its suite of software for creative professionals -- on time over the next nine months. While Adobe does expect sales of its flagship creative suite to tail off before the launch of the new version next spring, its latest results indicate that demand for the product is still solid. And Adobe's outlook suggests that the company expects other new products to make up for any sales slack in coming months.

"The bottom line is Adobe's end markets are healthy," wrote Piper Jaffray analyst Gene Munster in a report released Friday. Its underlying health "appears to be providing a soft landing for the new creative suite ahead of the highly anticipated launch of the next version," added Munster, whose firm has done noninvestment banking business for Adobe in the last year.

Munster reiterated his outperform rating and $45 price target on Adobe's stock. And he wasn't the only one that was bullish. At least three other analysts reiterated their outperform or buy ratings, and Goldman Sachs upgraded the stock to a buy from a neutral.

Investors seemed to be following their advice. In recent trading, Adobe's stock was up $4.01, or 11.9%, to $37.66 on trading that was already more than three times the stock's normal daily average. Earlier in the session, Adobe's stock was up as much as $4.54 to $38.19.

On Thursday, Adobe reported that third-quarter profit plunged 35% from the year-ago period. But the falloff was largely due to acquisition and stock-options costs that didn't weigh on the company's results last year.

Setting those aside, Adobe's results topped expectations. Additionally, the Photoshop publisher gave guidance for the fourth quarter that essentially met analysts' growth targets.

In the quarter ended Sept. 1, Adobe earned $94.4 million, or 16 cents a share. In contrast, the company earned $144.9 million, or 29 cents a share, in the year-ago period.

Thanks in part to the company's acquisition of Macromedia -- whose results weren't included in the year-ago results -- Adobe's sales jumped 21.7% to $579.2 million.

Excluding options, amortization and certain other costs, Adobe would have earned 29 cents a share, compared with 31 cents a share last year.

On this basis, analysts polled by Thomson First Call were expecting the company to earn 26 cents a share on sales of $595.1 million. Adobe's guidance, which the company reaffirmed in August, called for earnings of 13 cents to 16 cents a share -- 25 cents to 27 cents, excluding options and acquisition costs -- on sales ranging from $580 million to $610 million.

Looking forward, Adobe expects to earn 19 cents to 22 cents a share -- 32 cents to 34 cents excluding options costs -- in its fourth quarter on sales of $655 million to $685 million. At the midpoints, that works out to a pro forma profit of 33 cents a share on sales of about $670 million.

That's slightly above the Street's average forecast, which called for a profit of 32 cents a share, excluding charges, on $668.6 million in sales.

In the same period last year, Adobe earned $156.3 million, or 31 cents a share, on sales of $510.4 million. Excluding certain costs and gains, the company would have earned 30 cents a share in that quarter.

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