Adobe: “Bad Time To Buy,” Says Cowen
It’s a “bad time to buy” Adobe (ADBE) shares, Cowen’s Walter Pritchard warned investors in a research note this morning.
Prirchard notes that the stock is traded at a “meaningful premium” to peers, at 1.35x the average valuation of large-cap software stocks. He says a key driver for the company will be adoption of Creative Suite 4, but that “visibility into this cycle should be lower than in CS3 due to strong prior upgrade cycle as well as macro uncertainty.”
Pritchard says there is a high correlation between Adobe’s sales of Creative Suite and metrics such as nominal GDP, magazine advertising, direct mail and total ad spending. He’s not predicting a decline in Adobe’s revenue - which is what happened in 2001-2002 - but he says the company is “more exposed than most investors realize” to the softening economy.
Also, Pritchard says he tested the “popular notion” of buying Adobe shares six months before a new release of Creative Suite. He says the stock actually tends to be flat for the six months before release, and then to trade down after.
Pritchard maintains a Neutral rating on the stock.
ADBE today is down 62 cents, or 1.4%, to $45.27.
SHEER NONESENSE.The guy doesnt know what he is talking about
With the Macromedia merger, Adobe has diversified. And while CS and Acrobat still accounts for big numbers, its software release cycle curve has widened and flattened with the introduction of Flex and RIA tools and its new Saas offerings.
Finally, Adobe has established and is solidifying its position as the cross-platform target leader with their push into the Mobile space, new Flash Runtime features and deep (95%+) penetration on connected desktops.
Tech Trader Daily is a blog on technology investing written from Palo Alto, California by long-time Barron's West Coast Editor Eric J. Savitz. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields.
