Solid Q1 For $ADBE : Morgan Stanley Previews The Print

Adobe Systems Incorporated ADBE 0.31% is scheduled to release its fiscal 2018 first-quarter results after the market closes Thursday. Analysts, on average, expect the company to report Q1 earnings per share of $1.44 Vs. 94 cents one year ago and year-over-year revenue growth of 21.70 percent to $2.05 billion.

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The Analyst

Morgan Stanley analyst Keith Weiss has an Equal-weight rating on the shares of Adobe and a $193 price target.

The Thesis

Adobe is likely to report another solid first quarter, with “steady” Creative Cloud renewal rates and increasing penetration for Experience Cloud, Weiss said, citing Morgan Stanley’s quarterly channel conversations.

“Within Experience Cloud, channel partners are focused on helping customers gain the most value from their Adobe investment, which often leads to the purchase of additional modules,” the analyst said.

The company’s investment in direct professional services work creates a competitive relationship with channel partners, Weiss said.

Document Cloud saw “healthy” uptake, while spending by U.K. partners is delayed due to Brexit uncertainty, according to Morgan Stanley.

Morgan Stanley’s Q1 Targets

  • Revenue: $2.040 billion
  • EPS: $1.43
  • Digital media revenue: $1.423 million, up 25 percent, with $1.183 billion from Creative.
  • Digital media ARR: $5.7 billion, with $275 million in new ARR.
  • Experience Cloud: $550.8 million, up 15.4 percent.

Fiscal 2018 Expectations

Weiss said he expects in-line, 20-percent-plus top-line growth in 2018 amid planned investment. To reflect the planned S&M investments, the analyst estimates 2018 operating margins of 40.2 percent, a 220-basis point year-over-year expansion that’s slightly shy of the consensus.

“Adobe’s track record would suggest potential for upside as we go through the year, with revenue beats flowing through to the bottom line,” Weiss said.

Morgan Stanley expects 2018 earnings per share of $6.20, in line with Adobe’s revised targets that incorporate tax impacts.

Although the 20-percent CAGR for earnings per share and high-teens top-line growth targets into 2019 are impressive, Weiss said the growth is already incorporated in the consensus estimates as well as the stock’s valuation.

The Price Action

Adobe shares are up about 83 percent over the past year and have advanced 26 percent year-to-date.