On Thursday, TD Cowen maintained its Hold rating on Adobe stock (NASDAQ:ADBE), but lowered the price target from $550.00 to $490.00. According to InvestingPro data, Adobe commands a market capitalization of $166.5 billion and maintains impressive gross profit margins of 89%. The stock has experienced a challenging period, down 23.5% over the past year, with current analysis suggesting the stock is trading below its Fair Value. The adjustment follows Adobe’s first-quarter net new annualized recurring revenue (NNARR) of approximately $410 million, which was consistent with Wall Street expectations but marked a departure from the company’s historical trend of exceeding forecasts. Despite this, Adobe’s Document Cloud (DC) growth of 12% on a constant currency basis surpassed TD Cowen’s estimate of 11%, while the Digital Experience (DX) segment performed as anticipated. The company’s overall revenue growth stands at 10.8%, with InvestingPro analysis revealing 12+ additional key insights about Adobe’s growth trajectory and market position.
Adobe reiterated its guidance for fiscal year 2025, and the company’s recent focus on its generative artificial intelligence (GenAI) products has resulted in over $125 million in annual recurring revenue (ARR), which is less than 1% of the total ARR. The goal is to reach $250 million by the end of 2025. TD Cowen believes that Adobe’s stock will likely remain range-bound until GenAI’s contribution to growth becomes more significant.
The report noted that while the quarter’s results were solid, the lack of NNARR growth and a return to negative growth trends have adversely affected the stock, which fell 5% in after-hours trading. The launch of new GenAI products is seen as positive; however, the firm expressed a desire to see these initiatives achieve greater scale. The debate among investors regarding the monetization of GenAI and the competitive landscape is expected to persist.
TD Cowen sees the current valuation of Adobe shares, trading at approximately 18 times the enterprise value to the calendar year 2026 estimated free cash flow (EV/CY26E FCF) in after-hours trading, as nearing a potential floor. Nevertheless, the stock is anticipated to remain range-bound in the near term. The revised price target of $490.00 is based on an estimated 21 times EV/CY26E FCF. Current InvestingPro metrics show Adobe trading at a P/E ratio of 30.9x and maintaining strong financial health with an Altman Z-Score of 13.22, indicating robust financial stability. For comprehensive insights into Adobe’s valuation and growth potential, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Adobe has reported a robust start to its fiscal year 2025, with its first-quarter results surpassing expectations and reaffirming its full-year guidance. Despite these strong earnings, several analysts have adjusted their price targets for Adobe. RBC Capital Markets reduced its target from $550 to $530, citing peer multiple compression, while maintaining an Outperform rating. Similarly, BMO Capital Markets lowered its target from $515 to $495, maintaining an Outperform rating due to unchanged guidance and valuation concerns. DA Davidson also adjusted its price target from $625 to $600, retaining a Buy rating, emphasizing Adobe’s resilience amid economic challenges. Piper Sandler maintained an Overweight rating with a $600 price target, highlighting Adobe’s strong Q1 performance and potential growth from AI products. Conversely, KeyBanc Capital Markets decreased its price target from $450 to $390, maintaining an Underweight rating due to mixed financial metrics and concerns over forward-looking metrics such as bookings. These developments reflect a cautious yet optimistic outlook on Adobe’s financial and operational trajectory.
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