Adobe's Consistency Should Be Rewarded, Says JPMorgan

JPMorgan’s Sterling Auty believes the strong Q4 results reported by Adobe Systems Incorporated (NASDAQ: ADBE) were a “very good finish to the fiscal year with all segments and geographies of the business performing very well.”

Auty maintains an Overweight rating on the company, with a price target of $124.

“The outlook for fiscal 2017 showed the impact of the continued strengthening dollar otherwise it was in line with the preliminary look,” the analyst mentioned, while adding, “In light of increased volatility in results from a number of other software segments this consistency should continue to be rewarded with further share outperformance.”

Another Strong Quarter

Adobe Systems reported its revenue and non-GAAP EPS for the quarter ahead of the consensus and estimates at $1,608.4 million and $0.90, respectively.

Digital Media ARR for the year came in at $4.014 billion on a constant currency basis, again ahead of the estimate and the consensus.

Sequential net new ARR addition stood at $289 million over Q3 2016, with a majority coming from the Creative Cloud segment, which grew 40.8 percent year-on-year.

Outlook

Although management cautioned operating margins were likely to go back to the mid-30s, given the prospects of an additional 100 bps margin expansion in FY 2017 and with management commenting that there remains ample operating leverage, Auty believes operating margins could be in the high 30s or low 40s.

However, the strengthening U.S. dollar impacted revenue both quarter-on-quarter and year-on-year, and the headwinds also affected Adobe Systems’ revenue guidance, which was below the initial guidance provided in November.

At last check in Friday's pre-market session, shares of Adobe were up by 1.67 percent at $106.85.