Adobe Has Limited Upside: Here's Why

Adobe Systems Incorporated ADBE reported robust Q4 2016 results, with the revenue and EPS ahead of the consensus forecasts.

Wunderlich’s Ryan MacDonald reiterated a Hold rating on the company, with a price target of $115.

“The company continues to show strong momentum across Creative Cloud adoption and Marketing Cloud growth and appears to be carrying that momentum into 2017, despite concerns surrounding the strengthening U.S. Dollar,” the analyst mentioned.

MacDonald expects the strength in Adobe Systems’ business to continue, although there appears to be limited upside in the near term, given the stock’s premium valuation.

Q4 Results

The company reported revenue for the quarter at $1.61 billion, representing a 23 percent year-on-year increase and ahead of the consensus. The EPS came in at $0.90, again beating the consensus forecast.

Marketing Cloud revenue grew 32 percent year-on-year to $465 million, while operating margins of 36.7 percent were ahead of consensus.

“ADBE repurchased 3.2mm shares, returning $331mm to shareholders; the company has $500mm remaining on its repurchase program,” the analyst stated.

Recurring revenues accounted for about 82 percent of the total Q4 revenue.

2017 Outlook

Adobe Systems guided to Q1 revenue of $1.625 billion, below the consensus expectation of $1.65 billion. However, the EPS guidance was marginally above consensus at $0.85-$0.87.

The company guided to revenue of $6.95 billion for FY 2017, again below the consensus of $7.071 billion.

“While management expects stronger-than-initially anticipated FX headwinds, the company remains confident in its ability to execute and reiterated the FY17 EPS outlook set at its analyst day of $3.75, below consensus of $3.83,” MacDonald added.