Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Adobe Systems (Nasdaq: ADBE) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.
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- Despite its growing revenue, the company underperformed as compared with the industry average of 8.0%. Since the same quarter one year prior, revenues slightly increased by 5.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Although ADBE's debt-to-equity ratio of 0.23 is very low, it is currently higher than that of the industry average. To add to this, ADBE has a quick ratio of 1.74, which demonstrates the ability of the company to cover short-term liquidity needs.
- Net operating cash flow has increased to $367.54 million or 22.86% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.54%.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 59.47% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- ADOBE SYSTEMS INC has improved earnings per share by 13.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ADOBE SYSTEMS INC reported lower earnings of $0.57 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus $0.57).