Adobe, Settling Down to Better Value (ADBE)

Adobe Systems (ADBE-NASDAQ) is a stock we have been a bit cautious on going into the last earnings.  We had even noted how shares were priced for perfection. Part of the caution was based on performance and on valuations, but the main issue with the stock is how the new products may or may not contribute to a growth model that is already priced into the stock.  Sure enough, after the earnings traders saw the slight upside and the in-line to only a tad-above guidance and sold shares off immediately.

It appears that Goldman Sachs feels the same.  Goldman Sachs this morning removed Adobe shares from its Buy List of stocks and downgraded its rating to a "Neutral."  The firm noted that it expects it to sustain its 17% revenue growth this year, but it doesn’t see any significant upside to the numbers.  The stock had been up 9% since last September, but up over 31% over the last year (compared to an S&P of 20.3%).

Shares of Adobe are down more than 1% so far today at $39.84, and its 52-week trading range is $25.98  to $44.92.  Based on forward earnings estimates, Adobe trades at 26.4-times Fiscal NOV-2007 EPS and trades at 23.4-times Fiscal NOV-2008 EPS. 

Jon C. Ogg
June 26, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.