Color On Adobe's Quarter: Solid, All Eyes On CS3 Launch

| About: Adobe Systems (ADBE)

Most firms are positive on Adobe Systems (NASDAQ:ADBE) following Q1 results:

- Goldman Sachs
notes Adobe reported solid 1Q results, though revenues of $649 mn were a bit lighter than their $662 mn estimate, EPS (ex-ESOs) of $0.30 was ahead of their-and Street-$0.29 estimate, and continuing to demonstrate the company's close focus on costs and their ability to steer to EPS as the quarter progresses. Creative Solutions, in particular, delivered revenues of $346 mn, ahead of firm's $320 mn estimate, indicating strong demand for the product suite which is only likely to amplify, in their view, as CS3 launches later in the quarter.

Results should prove to be a positive for the stock. With the product cycle trough (for Creative Suite products) now behind us, the firm is looking for a succession of catalysts starting with next week's announcement of CS3 followed next day by the company's analyst day.

The key risk is that investors will tend to sell on the news as CS3 launches. GSCO notes that in each prior cycle, Adobe shares ran up significantly ahead of the release and then tended to trade down in the aftermath. Increased competition from Microsoft is also a threat with the launch of Vista. Maintains Buy with a $47 tgt.

- Piper Jaffray
says that for Q2, Adobe guided to $0.34-$0.36 on $700m-$740m vs. Street
estimates of $0.35 on $718.1m. The firm is confident in this guidance, given CS3's impact on the second half of the May quarter will be significant.

They believe there are two risks to ADBE shares. The first is multiple compression. There is always the potential that investors believe this is the Adobe of old, and the way to trade the stock is to sell the stock before CS3 ships. (Typically the stock trades off 15% in the three months following shipment.) Firm believes this risk is low, given the sell off already happened in the month of January, and now investors are focusing on earnings growth and the upcoming easy comps in August and November. The second risk is the majority of the sell side is positive on Adobe, and investor optimism can only go down (i.e. Microsoft and Vista).

Overall, they believe the positives well outweigh the risk. Maintains Outperform and $51.

Notablecalls: Yes, ADBE stands on the eve of its biggest product launch ever. But don't forget the company has a close to $25 billion market cap and trades at 25 times its 2008 EPS estimate. Quite simply, I don't think the almost 2 pt gain reached in after hours will hold today.

Sitting at my old trading desk I would have loved to put out a short line in the stock around $43. Not sure it will get there this AM, though.