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On Thursday, Mizuho (NYSE:MFG) Securities maintained its Outperform rating on Adobe (NASDAQ:ADBE) shares but reduced its price target from $620 to $575. The adjustment follows Adobe’s first-quarter financial report, which reflected a 12.6% year-over-year constant currency growth in Digital Media Annualized Recurring Revenue (ARR), slightly surpassing the consensus estimates. Adobe’s total revenue for the quarter reached $5.71 billion, exceeding Wall Street’s projections of $5.66 billion. The company’s impressive 89% gross profit margin and $21.5 billion in trailing twelve-month revenue underscore its strong market position. Additionally, the company has reaffirmed its fiscal year 2025 guidance. According to InvestingPro, Adobe maintains robust financial health with a "GOOD" overall score.
Adobe’s performance in fiscal year 2024 has been described as challenging, with the stock showing a -23.5% total return over the past year. However, recent announcements suggest a positive shift. The company is reportedly starting to effectively monetize its Generative AI innovations, which could lead to significant growth in ARR and revenue for fiscal year 2025. Despite the positive outlook, the price target was adjusted due to comparative multiple compression and a quarter that did not fully meet expectations. InvestingPro analysis shows Adobe trading at elevated multiples, with a P/E ratio of 35.5x and strong cash flows that can sufficiently cover interest payments.
The report also highlighted a change in Adobe’s reporting practices. The company will no longer provide separate financial results for its Creative Cloud and Document Cloud services. This modification in disclosure practices has been noted alongside the financial results.
Mizuho analysts expressed confidence in Adobe’s valuation, citing an attractive price at approximately 17.5 times the estimated Free Cash Flow (FCF) for calendar year 2026. The firm views Adobe’s current valuation as favorable and continues to recommend the stock as one of their top picks for the next 12 months.
In summary, Mizuho’s latest analysis reaffirms their positive stance on Adobe, despite a slight reduction in the price target. The firm anticipates that Adobe’s ongoing innovation and growth in ARR will drive the company’s performance in the coming year.
In other recent news, Adobe reported its first-quarter fiscal year 2025 results, surpassing analysts’ expectations. The company announced non-GAAP earnings per share of $5.08, exceeding the consensus estimate of $4.97, and reported revenue of $5.71 billion, which also surpassed forecasts. Adobe’s Digital Media segment saw a revenue increase of 11%, while the Digital Experience segment grew by 9%. The company also reported a net new Digital Media Annualized Recurring Revenue of $414 million, above the anticipated $408 million. Adobe’s Remaining Performance Obligation, a measure of future revenue, stood at $19.97 billion, reflecting a 12% year-over-year increase.
In other developments, BofA Securities adjusted its price target for Adobe, lowering it to $528 from $605, while maintaining a Buy rating. The revision was attributed to recalibrated valuation multiples in the software sector. Additionally, Adobe’s AI platform, Firefly, showed promising growth with a surge in monthly active users, rising from 4.5 million in January to 6 million in February. This uptick supports the firm’s optimistic outlook on the platform’s monetization potential.
Despite the strong earnings report, Adobe’s stock experienced a decline in after-hours trading. The company also reaffirmed its fiscal year 2025 targets, projecting continued growth driven by AI innovations. Adobe’s free cash flow for the quarter was notably higher than expected, reported at $2.46 billion against a consensus estimate of $2.07 billion. Citizens JMP analysts reiterated a Market Outperform rating for Adobe, reflecting confidence in the company’s ongoing performance and future prospects.
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