Morgan Stanley Turns Bullish On Adobe, Highlights 'Durable' 20% EPS Growth

Software investors may want to consider passing on "hyper growth stories" in favor of a company like Adobe Inc ADBE, which offers a "durable" earnings per share growth profile, according to Morgan Stanley.

The Analyst

Keith Weiss upgraded Adobe from Equal-weight to Overweight with a price target lifted from $282 to $340.

The Thesis

Adobe's Digital Media business accounts for 70 percent of the company's total revenue, but the segment's outlook had minimal visibility, Weiss said in a Monday note. (See his track record here.)

Firsthand observations at the company's "Adobe Summit" event, chats with management and a financial analysis of the segment warrant a bullish stance, according to Morgan Stanley. 

The Digital Media business could see a deceleration in growth at a faster pace than Street estimates are modeling, Weiss said. The company could benefit from "very natural leverage" across S&M and R&D operating expense categories, he said. 

Adobe's Digital Experience could see an acceleration in organic growth and show a better-than-expected revenue growth rate, the analyst said. In addition, the business could show improving segment profits as M&A pressures ease and organic investments are yielding financial benefits, he said. 

Adobe's outlook supports a case for 20-percent earnings per share compounded annual growth through fiscal 2021, and this isn't factored into the stock, according to Morgan Stanley. 

Price Action

Adobe shares were trading up 2.17 percent at $288.08 at the time of publication Monday. 

Related Links:

Guggenheim: Adobe Summit Focused On Extracting Value From Data

Oppenheimer: Adobe Upbeat About Digital Experience Business Momentum