Adobe's Q4 Earnings Report: The Street Reacts

Adobe Inc ADBE on Thursday reported its fiscal fourth-quarter earnings report. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• BMO Capital Markets' Keith Bachman maintains an Outperform rating on Adobe with a price target lifted from $295 to $300.
• Wells Fargo's Philip Winslow maintains at Market Perform, unchanged $250 price target.
• Oppenheimer's Brian Schwartz maintains at Perform, no assigned price target.
• Wedbush's Daniel Ives maintains at Neutral, unchanged $270 price target.
• KeyBanc Capital Markets' Brent Bracelin maintains at Overweight, price target lowered from $286 to $282.
• Pivotal Research Group's Brian Wieser maintains at Hold, price target lowered from $254 to $252.

Shares of Adobe were trading lower by 5.4 percent to $234.78 at time of publication.

BMO: Main Takeaways

Adobe's earnings print was highlighted by a few main takeaways, Bachman said in a note. These include:

• Operating cash of $1.1 billion amounted to a 45 percent margin versus a three-year average of 39.9 percent.
• Management's fiscal first-quarter revenue guidance is $28 million above the Street's estimate and still looks conservative.
• Operating margins in 2019 are likely to be flat due to foreign exchange and M&A integration costs.

Wells Fargo: 6 Key Readouts

Adobe's "solid" earnings report was driven by six factors, Winslow said. These include:

• Encouraging customer acquisition trends from Adobe.com
• Strong enterprise year-end seasonality
• Continued adoption of Creative Cloud in the education space.
• Strength in emerging markets.
• Strength in service adoption.
• Pricing optimization in North America.

Despite multiple encouraging trends in the quarter and the company's continued successful transition towards a subscription model, Winslow said the stock's valuation already reflects the many positive trends.

Oppenheimer: 3 Negative Points

Adobe's "good" report includes three negative points, Schwartz said.

• Pro-forma operating margin fell 160 basis points from a year ago to 38.6 percent and missed consensus estimates by 220 basis points.
• Organic revenue was likely around 20 percent which marks the second straight quarter of deceleration.
• APAC revenue growth decelerated from 24 percent last quarter to 19 percent.

Related Link: Adobe Hits New Highs: Wall Street Debates If It's Time To Buy Or Sell

Wedbush: 'Ho-Hum' Quarter

Adobe reported a "ho-hum" quarter as bulls were expecting a top-line beat instead of matching management's guidance and the Street's estimate, Ives said. Nevertheless, the company's outlook remains encouraging with healthy demand trends across creative and marketing solutions end-markets. The company appears to be on track to continue navigation with "no major speed bumps" but the stock's current valuation offers a fairly balanced risk to reward profile.

KeyBanc: Solid Quarter

Adobe net profits rose 51 percent from last year and organic revenue grew 23 percent, Bracelin said. Encouragingly, the company's free cash flow came in north of $1 billion for the first time ever and free cash flow margin topped 40 percent. Management is set to invest in integrating Marketo and Margento in its business, however, which will likely result in temporary operating margin pressures.

Pivotal: Long-Term Picture

Management's 2019 guidance was below the Street but can be attributed to factors unrelated to core operations, Wieser said. Over the longer term, the company should benefit from the marketing technology sector and the "myriad of ways" marketers use related products and services to boost their own sales.

The research firm's $252 price target is based on a discounted cash flow model through fiscal 2022 and assumes a long-term discount rate of 11.8 percent and a long-term growth profile of 7.5 percent.