Why Adobe's CFO Transition Is No Reason To Fret

Adobe Systems Incorporated (NASDAQ: ADBE) shares peaked as much as 6.4 percent after hours Monday on positive guidance and news of the CFO’s retirement.

One analyst firm thinks the market’s underreacting.

The Analyst

Canaccord Genuity analysts Richard Davis and David Hynes reiterated a Buy rating on Adobe and increased their price target from $195 to $220.

The Thesis

Davis and Hynes consider Adobe impervious to announced management transitions considering its business momentum and scale. At the same time, current CFO Mark Garrett intends to stay on until the firm appoints a successor, whom Canaccord expects to be “the pick of the litter” for such a “plum position.”

“While we do not expect the transition will be materially disruptive, we would be remiss if we did not note CFO Garrett's accomplishments, which include architecting a model transition that took recurring revenue from 5 percent of total to 85 percent-plus today, as well as the integration of several important acquisitions, including Omniture, Day Software and Tube Mogul,” the analysts said in a note.

Meanwhile, Adobe is also seen to receive a boost in earnings per share and free cash flow from a decreased tax rate.

While the stock price already accounts for some of the factors, Canaccord anticipates continued thrusts higher.

“Perhaps like Spinal Tap’s amplifiers that ‘go to 11,’ this news inches us up from an already quite bullish ‘10,’” Davis and Hynes said.

Price Action

At time of publication, Adobe was trading up 1.3 percent at $200.44.

Related Links:

KeyBanc Raises Price Target On Adobe By 20%, Cites Cloud, AI

Adobe Likely Has More Earnings Upside In Its Future