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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

COVER STORY: High-Wired Act by Jay Palmer

Summary: "Adobe (NASDAQ:ADBE) is the driving force behind the creative activity of the Web today" -- John Witte, creative director of COXnet AdStudio, which produces print and online support for the Cox newspaper chain. With a 500% share price jump since 2001, its potential has not escaped investors. Yet even at a rich 28.6x estimated 2007 earnings of $1.48/share (vs. rival Microsoft's (NASDAQ:MSFT) 19x), shares may be cheap. Its free cash flow, at over 30% of sales, makes it one of the most cash-rich stocks around. Many analysts, including Tom Ernst of Deutsche Bank, say Adobe may well post earnings surprises in the near future; conservative 20% growth estimates could easily come in as high as 30%. Integration of the Macromedia line, which it acquired in late 2005, will begin to show its colors with the much-anticipated release of Creative CS3 15 04 2007Suite 3 [CS3]. Prices for the suite run from $240 for a basic upgrade to $2,500 for the CS3 Master Suite. Yet despite the higher-than-expected prices, initial reviews have been 'strikingly favorable' -- the buzz has been particularly loud from the Mac crowd, due to the suite's aggressive approach to maximizing Apple's (NASDAQ:AAPL) new Intel-chip architecture, which will lead to quicker response times. Its Flash software dominates close to 99% of the red hot user-submitted web video content, as well as online video ads which are growing in triple digits. Even bigger may be its use potential for mobile video on iPods, cellphones and gadgets. Bulls say shares ($41.64) should hit at least $50 (+20%) within a year.

Related Links: Adobe’s Pride in its Headquarters Fails To Make the Balance SheetAdobe: All Street Eyes Trained On Creative Suite 3Will Apollo Change Adobe's Fate?
Conference call transcript: Adobe Systems F1Q07 (Qtr End 3/2/07) Earnings Call Transcript

Adobe Systems 15 04 2007

Source: Adobe: Positive Earnings Surprises Should Drive Upside - Barron's