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On Thursday, Evercore ISI analyst Kirk Materne revised Adobe’s (NASDAQ:ADBE) price target downward to $550 from the previous $650, while maintaining an Outperform rating on the stock. Currently trading at $438.60, Adobe commands a market capitalization of $190.75 billion and maintains impressive gross profit margins of 89%. According to InvestingPro analysis, the stock is currently undervalued despite trading at relatively high earnings multiples. Materne’s analysis suggested that Adobe’s performance at the start of the fiscal year 2025 was solid, yet it did little to sway investor sentiment decidedly in favor of the company. Despite a valuation that seems reasonable at approximately 19 times the projected earnings per share (EPS) for calendar year 2026, the unchanged fiscal year 2025 guidance and the lack of significant outperformance relative to Wall Street’s expectations regarding net new annual recurring revenue (NNARR) have left the investor narrative largely unaltered.
Adobe’s attempt to draw investor attention away from quarterly NNARR metrics has been met with skepticism. The company did, however, introduce an annual recurring revenue (ARR) metric for its artificial intelligence (AI) offerings, projecting growth from $125 million to $250 million by the end of the year. With revenue growth of 10.8% over the last twelve months and a strong financial health score from InvestingPro, Adobe continues to demonstrate its market leadership. Additionally, Adobe plans to offer more details on the segmentation of its corporate/enterprise business versus its consumer/creative business.
While further insights into these metrics are expected next week, Materne indicated that a more straightforward approach to attract investors might be to provide a multi-year, low to mid-teens total return target. This would be based on a realistic top-line growth forecast of approximately 9-10%, modest margin expansion of around 50 basis points, and a more assertive share buyback strategy.
The report emphasized that while AI has the potential to reaccelerate Adobe’s revenue growth, investors would welcome a clearer and more comprehensible investment thesis looking ahead a few years. Materne adjusted the price target to $550, which corresponds to 25 times the projected EPS for calendar year 2026. The analyst concluded that a significant reevaluation of Adobe’s stock multiple would likely require a bolder approach from management concerning share repurchases, as the fundamentals are not expected to change materially in the near term and the anticipated benefits of AI are already factored into the current outlook. InvestingPro data reveals that management has been actively buying back shares, with 12 additional exclusive insights available to subscribers through the comprehensive Pro Research Report.
In other recent news, Adobe has reported a strong financial performance for the first quarter of fiscal year 2025, exceeding analysts’ expectations with a non-GAAP earnings per share (EPS) of $5.08, compared to the forecasted $4.97. The company also surpassed revenue forecasts, posting $5.71 billion against a projected $5.66 billion, representing an 11% increase from the previous year. Despite these positive results, several firms have adjusted their price targets for Adobe. DA Davidson lowered its price target to $600 while maintaining a Buy rating, citing Adobe’s commendable performance amid challenging economic conditions. Mizuho (NYSE:MFG) also reduced its price target to $575, maintaining an Outperform rating, due to comparative multiple compression. BofA Securities further cut its target to $528 but upheld a Buy recommendation, highlighting Adobe’s steady course and increasing adoption metrics. Additionally, Adobe’s management expressed confidence in the company’s prospects, reinforced by a diversified business model and strong enterprise performance. The company has also been noted for its innovation in AI-driven products, which is expected to contribute to future growth.
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