Adobe Systems' Creative Cloud Service a Favorite on Wall Street

(Bloomberg) -- Adobe Systems remains a favorite pick on Wall Street, surging to an all-time high after first-quarter sales and profit topped analysts’ estimates. Now it plans to raise prices on popular software like Photoshop next month, and analysts say that helped subscription sales as customers sought to lock in lower monthly rates.

Prodigious growth in Adobe’s creative cloud resulted in an annualized recurring revenue (ARR) of $5.7 billion at the end of the latest quarter in its digital media segment, up $336 million quarter-over-quarter, with Creative ARR of $5.07 billion and Document Cloud ARR reaching $647 million.

Rosenblatt Securities analyst Marshal Senk isn’t unique in his confidence in Adobe, saying the business "can execute on large growth opportunity ahead." Today’s rally brings Adobe’s advance over the past 12 months to 85 percent -- with more than a third of that coming in just 2018 alone.

Rosenblatt Securities, Marshal Senk

(buy, PT $265 from $224)

"With Adobe’s Cloud platform, we believe Adobe is establishing a way to connect its businesses via a common data model significantly enhancing the value proposition for its customers." Research suggests continued strong momentum in Adobe’s partnership with Microsoft.

"The foundation of the Adobe Cloud Platform and integration across both digital media and experience sends a highly-differentiated message to the market as none of the company’s competitors can tie the two worlds together so completely."

BMO Capital, Keith Bachman

(outperform, PT $260 from $205)

Adobe "has developed a next generation digital marketing hub, which supports the full lifecycle of marketing strategies, providing ADBE with a sustainable competitive advantage."

"Adobe has been our top pick since the beginning of 2017, and our conviction was driven by our belief that margins and FCF upside would drive the shares higher." More than a year later, Adobe remains a top pick due to its FCF valuation relative to revenue and FCF generation growth potential.

Oppenheimer, Brian Schwartz

(market perform, no PT)

"We remain positive on Adobe’s fundamentals, management, and leading positioning, but are stuck sidelined on valuation. The company is a high-quality franchise, well-run, and the business is on a strong uptrend."

The software provider posted "strong first-quarter performance, and the results should feed the current insatiable desire by investors for owning next generation cloud vendors like Adobe"

Stifel, Tom Roderick

(buy, PT $250 from $230)

Due to its early mover position and strategic M&A deals, "Adobe has established itself as the unchallenged leader in Creative software for both the Enterprise and Consumer markets."

"With significant growth in influence of the front office over the last decade, we believe Adobe’s transition to a subscription-based, Cloud delivery model in its core services – Creative Cloud, Document Cloud, and Experience Cloud – has provided an easier onboarding process and a more comprehensive platform that is attractive to enterprises shifting away from legacy solutions."

Cowen, James Fitzgerald

(outperform, PT $255 from $220)

"A mix of growth, profitability, market leadership and sustainable competitive advantage make ADBE an attractive stock for a wide variety of investors. Through its cloud transformation, the digital media business has experienced a substantial injection of growth and TAM that still has a long runway ahead."

"With management indicating that price increases will have even greater effect next year, there seems to be very good durability of growth/margin strength ahead."

Evercore, Kirk Materne

(outperform, PT $245 from $220)

"Within Creative Cloud, Adobe continues to benefit from ARPU increasing as customers attach additional services and purchase a broader suite of add-on products (e.g. Adobe Stock) and the company should start to see a bigger benefit from its pricing increase in FY19."

Anticipates a more detailed update on new product developments across the experience cloud segment at the Adobe Summit scheduled for March 25th through March 29.

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