ANALYST WATCH: Adobe Systems comes full circle

One year ago, Adobe Systems was trading at a 52-week low and was in the process of cutting 10 percent of its workforce. Today, it’s within a few ticks of an all-time high and poised for another strong quarter.

Back in early June of last year, Adobe (Nasdaq: ADBE) slashed 10 percent of its workforce while simultaneously preannouncing better-than-expected second quarter earnings.

Adobe did beat the Street estimate in that quarter and has in every quarter since.

While its facing increasing competition from Macromedia Inc. (Nasdaq: MACR), Adobe still holds a commanding lead in this high-margin market.

On June 15, Adobe will report its second-quarter results with analysts predicting a profit of 48 cents a share.

Jay Vleeschhouwer, an analyst at Merrill Lynch, maintains a “buy” recommendation and expects it to earn 48 cents a share on sales of around $295 million.

“Adobe’s been a strong performer for most of the past year,” Vleeschhouwer said. “It’s really benefiting from some of its new products as well as upgrades of their popular programs like PhotoShop and Illustrator.”

In fact, Adobe shipped its latest version of Illustrator this week, further cementing its leadership position.

Vleeschhouwer said part of Adobe’s recent success is partially attributed to the turnaround at Apple Computer (Nasdaq: AAPL). Roughly 60 percent of Adobe’s software is purchased by Windows users, 40 percent are Mac fans.

That mix was slightly higher during the dark days at Apple, but now that Apple’s selling PowerMacs and iMacs in record numbers, Adobe’s quite happy to come along for the ride.

“I wouldn’t say there’s a direct correlation,” Vleeschhouwer said. “But it certainly doesn’t hurt that Apple’s turned things around in the past couple years.”

Last quarter, Adobe pocketed $64.6 million, or 51 cents a share, on sales of $282.2 million.

In April, Chase H&Q analyst Chris Galvin bumped the stock from a “market perform” rating to a “buy.” Now, 10 of the 13 analysts following the stock rate it either a “buy” or “strong buy.”

The stock surged to a 52-week high of 131 in April after bottoming out at 33 1/2 last June.

Analysts expect it to earn $2.02 a share in the fiscal year.