Credit Suisse Upgrades Adobe To Outperform On Cloud Strength, Momentum Expectations

“We upgrade shares of Adobe Systems Incorporated (NASDAQ: ADBE) to Outperform from Neutral, given our expectations for continued momentum in its highly profitable Creative Cloud business that we expect will lead to stronger than expected operating cash flows over the next few years,” Credit Suisse’s Michael Nemeroff explained in a note.

The analyst's upgrade to Outperform accompanies an increased price target from $125 to $150.

Stock Valuation

Nemeroff had been on the sidelines on Adobe Systems due primarily to its stock valuation, despite a positive view on the company’s “broad stack of digital media and digital marketing assets, large market opportunity, and a highly-skilled management team.”

However, with operating and free cash flow becoming incrementally more important to valuation, the analyst believes investors are likely to “increasingly gravitate” to subscription software vendors that deliver growth and demonstrate potential for robust cash flows.

Adobe Summit

After attending the Adobe Summit digital marketing conference, Nemeroff reported that the company highlighted a new go-to-market strategy with Adobe Experience Cloud.

Adobe Systems also emphasized its competitive differentiation, given the wide breadth of its digital marketing solutions, while also mentioning that a further extension of its partnership with Microsoft Corporation (NASDAQ: MSFT) “would offer joint solutions specifically designed to help enterprises transform their customer experiences by leveraging assets, technologies, and data from both companies with Adobe Sensei, an artificial intelligence solution.”

The revenue and EPS estimates for fiscal 2017 and 2018 have been raised.

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