Piper Sandler analyst Brent Bracelin reiterated Adobe Inc (NASDAQ: ADBE) with an Overweight rating and a $635 price target.
Bracelin noted that Adobe is a high-quality, large-cap software franchise with a compelling risk-reward profile entering 2025 and the potential to go from laggard to leader.
Shares have lagged 10% year-to-date (versus S&P 500 +28%) due to the existential threat from AI and NNARR quarterly volatility, which has overshadowed healthy subscription growth trends and improving current Remaining Performance Obligations (cRPO) growth metrics.
Earnings next week could provide another proof point on the durability of subscription growth alongside a high operating margin model of ~46%. While it may take time to reverse investor sentiment that remains mixed, Bracelin noted a path for EPS to compound at 13%+ annually to $30+ in 2028.
The rerating reflects new product momentum driving EPS and multiple expansions next year.
Subscription revenue (~95% of sales) has grown surprisingly healthy, with a 9-quarter average of 11.8% (versus 11.9% last quarter) despite elevated macro headwinds, budgetary battles, AI experimentation and competition, the analyst said.
The new Adobe Express Mobile app is resonating with new non-pro users. Quarterly downloads have spiked to 10 million+ (versus 1.3 million on average between the first quarter of 2021 and the first quarter of 2024).
The cRPO backlog steadily improved to $12.5 billion last quarter, with growth rates rising to 12.2% in the third quarter of 2024 from 10.9% in the second quarter of 2024 and 7.7% in the first quarter of 2024.
Bracelin projected fourth-quarter revenue of $5.53 billion and EPS of $4.67.
Price Action: ADBE stock is down 0.08% at $536.04 at last check Thursday.