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Analyst reports: Wall Street sees upside for Adobe

Adobe Systems gets a boost from analysts after the software company tweaks its senior management structure and announces solid earnings.

Adobe Systems got a boost from analysts Friday, after the software company tweaked its senior management structure and announced solid earnings.

San Jose, Calif.-based Adobe announced after the close of regular trading on Thursday that fiscal fourth-quarter profit fell 19 percent because expenses rose, and it lost money on investments.

Net income for the quarter, which ended Dec. 1, fell to $79.2 million, or 31 cents a share, from $97.4 million, or 38 cents, in the same period last year. Adobe's net income was dented mainly by a pretax loss of $7.4 million on venture investments, compared with a gain of $61.7 million a year earlier.

The company also announced that it had appointed Bruce Chizen, 45, to chief executive officer. Chizen replaces co-founder John Warnock, 60, who was named to the new position of chief technology officer.

Adobe executives said during a conference call Thursday that they expect first-quarter sales to rise 25 percent--same as they had been predicting earlier in the quarter. Executives said sales of the company's popular software, which includes desktop publishing tools and PhotoShop 6.0 digital-photo editing software, could withstand the increasingly sour consumer market for personal computers.

Analysts were pleasantly surprised by Adobe's surge. Investment banks Prudential Securities and Tucker Anthony reiterated their "strong buy" ratings, while Pacific Crest bumped Adobe up a notch to "buy."

The stock edged up 6.32 percent to $60.94 in midday trading Friday. Unlike many companies that cater to the Internet industry, the Web publisher's stock has not bottomed out in recent months. Shares are up 81 percent since the beginning of the year.

"Demand is strong both for the full versions and the upgrades. Noteworthy is that the company only benefited from PhotoShop 6.0 during a portion of the quarter," Salomon Smith Barney analysts Jonathan Rosenzweig, Stephanie Crane and Orton Chen wrote in a research note issued Friday. "The English version was shipped in early October, one-third of the way into the company's fiscal quarter...Overall, we estimate that PhotoShop accounts for 80 percent to 85 percent of Web Publishing revenues and can continue to generate growth of 25 percent to 30 percent or more."

Robertson Stephens analysts Aleksandar Sasa Zorovic and Lowell Singer predicted that the ascension of Chizen to CEO means a steady course for Adobe.

"In our opinion, this change recognizes the role Bruce (Chizen) has had at the company for some time and does not represent a significant change for the company going forward," the analysts wrote. "We maintain the company is uniquely positioned to capture on the needs of publishers, corporations and consumers to publish seamless across media and devices--and believe this opportunity is not fully reflected in the stock price."