UBS Investment Research
Adobe Systems Inc.
Raising PT to $45; All Fueled Up for CS5
Mgmt Bullish on CS5 Launch; Q2 Guide Implies Mid-Teens Core growth
FQ2 rev guid. of +2-8% q/q to $875-925M, for mid-teens y/y organic growth ex-
OMTR. Mgmt was justifiably bullish on its outlook for CS5, as superior pdts meet
pent-up demand & economic rebound. We model Creative Solutions segment
growth of 15% q/q & 21% y/y. Also, ADBE was upbeat on overall business, as co
guided to seq. uptrend in revs & mgns for rest of yr. ADBE remains 1 of the best
pdt cycle stories in large cap software. We believe investors still underestimate the
power of CS5 cycle and overestimate the threat of HTML5. Reiterate Buy rating.
Light Tree Turning Green: Strong Q1 Results & Q2 Guidance
FQ1 (Feb.) results were very encouraging as all pdt segments & geos showed
stabilization or notable strength, despite lull ahead of CS5 launch. Rev/EPS beat
hi-end of guidance: $859M vs. $800-850M, 40 cents vs. 34-39. Op mgn beat by
170 bp: 33.7% vs. 30-32% guid. FQ2 (May) guidance: rev $875-925M vs. our
prior $848M (now $915M); op mgn 33.5-35.5% vs. our prior 32.5% (now 35.0%);
EPS 0.39-0.44 vs. our prior 0.39 (now $0.43) despite higher tax rate and debt load.
Raising Estimates; FY10E Organic Rev Growth to 15% from 10%
FY10E to/from rev $3.73/3.58Bn (Street $3.59Bn), op mgn 36.5/34.7%, EPS
$1.84/1.77 (St. 1.79). We model rev +26.5% y/y (15.0% ex-OMTR) & EPS +20%.
Valuation: 28% Upside to Our New $45 PT
Our 12-mo $45 PT (was $43) is based on 21x P/E (unchanged) on PF EPS 5-8 qtrs
out (a slight discount to 22x median in last 20 yrs). Stock currently trades at 19.2x
CY10E & 16.7x CY11E.
Net Income (UBS)
EPS (UBS, US$)
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Profitability & Valuation