Adobe's Q2 Earnings: Expect Creative Cloud Unit To Drive Strength

Analysts at Credit Suisse maintained an Outperform rating and $150 price target on Adobe Systems Incorporated ADBE ahead of Tuesday's earnings report.

Credit Suisse's Michael Nemeroff is expecting Adobe to report revenue of at least $1.731 billion, which represents a 23.8 percent growth and is slightly above the company's prior guidance of $1.730 billion. Digital media is expected to come in at $1.176 billion and driven by Creative revenue of $989.8 million and Document revenue of $186.3 million. Digital Marketing revenue is expected to come in at $511.8 million.

Related Link: Adobe's Consistency Should Be Rewarded, Says JPMorgan

Nemeroff's bullish stance is based on expectations for continued momentum in the highly profitable Creative Cloud business that should help the company post stronger than expected operating cash flows over the coming years.

Also, as OCF/FCF becomes increasingly more important to valuing Adobe's stock, investors will naturally "gravitate" towards subscription software vendors that show a combination of both growth and strong cash flows over a longer period of time, the analyst added.

The $150 price target is based on the analyst's 2018 EV/OCF and EV/FCF multiple of 22.5x and 24.6x, respectively, which is even a discount to the peer average group of 27.6x and 45.5x, respectively.