Adobe Inc. (NASDAQ: ADBE) stock soared to a 33-year high of $291.70 on Monday after receiving an investment-rating upgrade from Morgan Stanley to an overweight rating. The research firm believed that the company’s future remained stable and it has the ability to achieve 20%-plus bottom line growth. Investors were satisfied with the software solutions provider’s recent stronger-than-expected first-quarter earnings results.
The firm also expected that the top and bottom lines growth in the near future would be driven by the contribution from Adobe’s digital-experience segment. They remained on the sidelines and remained cautious on Adobe’s digital-media business due to limited visibility into the components.
Meanwhile, investors believed that the stock has plenty of fundamental support for further price appreciation. This was due to the tremendous success in converting the company’s customer base into a subscription model. Adobe has also driven cross-selling opportunities across its product suite to lift average revenue per user.
The company has expanded itself meaningfully into new software categories, apart from managing to convert its customer base into recurring subscriptions. Also, Adobe boasts of a strong fundamental business model and an excellent management team. Along with this, the digital-experience segment could grow and likely to remain a major contributor to the top line growth.
For the second quarter of 2019, market analysts expect earnings growth of 7.20% to $1.78 per share and revenue to jump by 23.20% to $2.7 billion. They have predicted the growth estimates to be 22.65% higher per annum in the next five years. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $325 per share by 2020.
For the first quarter, Adobe reported a 16% growth in earnings helped by higher revenue as well as reflected the continued momentum across Adobe Creative Cloud, Document Cloud and Experience Cloud. Revenue increased by 25% year-over-year helped by double-digit growths in its three segments.
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For fiscal 2019, the company had expected adjusted earnings of about $7.80 per share and revenue of about $11.15 billion. For the second quarter, Adobe had predicted adjusted earnings of $1.77 per share and revenue of about $2.7 billion.
Adobe’s stock remained attractive in the near-term and is expected to reach over $300 by 2020 after considering the company’s guidance for the full year 2019. The stock reaching $300 could be based on the expectations that the digital-experience segment could grow further, successful leverage of the Marketo and Magento purchases, and the continued effort to foster relationships with other industry players.
Shares of Adobe opened higher on Monday and is trading in the green territory. The stock has risen over 29% in the past year and over 18% in the past three months.
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