Listen To AmTech On Adobe: It's Time To Sell

Nov.30.06 | About: Adobe Systems (ADBE)

We have not commented on broker research in the past but one should take note of the work going on at American Technology Research. Last month they made bold calls to buy Research in Motion (RIMM) and sell Garmin (NASDAQ:GRMN) which were not just on target but articulated regularly and with force. This is much of what investors long for in a world of bland research. Part of why Cramer is such a hit is that he gives a strong conclusion, even if it based on little to nothing.

Today AmTech is out with a sell rating for Adobe (NASDAQ:ADBE), a stock generally loved by the Street right now for good reason. Specifically, the firm noted the high expectations, valuation, low probability for an increase in guidance and the potential slowdown from both seasonality and a new product cycle starting mid-2007.

AmTech analysis calls for a near-term price objective of $33 although they admit that if the stock gets there, when the new product cycle does arrive next year then the longer-term outlook would remain positive.

We've followed ADBE for some time and felt that their acquisition of Macromedia gave them a near-monopoly on Web development tools in addition to their strong position in graphic design with Photoshop. However, since the acquisition the company has not exactly been executing in a fashion suggesting anything close to maximizing the opportunity they created for themselves.

There's just a little too much self satisfaction in their position and ability to charge obscene prices for their flagship product family (CreativeSuite).

The near-term call by AmTech is a good one. Longer-term it's still a bit unclear. Adobe certainly owns a few areas with products like Photoshop that seem impossible to live without for an important segment of users. They are also working to build suites of functions and capabilities in the corporate space around document management and the business process.

Thus far their success in adding potent growth engines is unproven. If they realize it isn't there we'd expect them to make another large acquisition to continue to play the growth through M&A wave.

Disclosure: Author has no position in ADBE

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