Piper Sandler analyst Brent Bracelin reiterated Adobe Inc ( ADBE ) with an Overweight rating and a $635 price target.

Bracelin noted that Adobe is a high-quality, large-cap software franchise with a compelling risk-reward profile entering 2025 and the potential to go from laggard to leader.

Shares have lagged 10% year-to-date (versus S&P 500 +28%) due to the existential threat from AI and NNARR quarterly volatility, which has overshadowed healthy subscription growth trends and improving current Remaining Performance Obligations (cRPO) growth metrics.

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Earnings next week could provide another proof point on the durability of subscription growth alongside a high operating margin model of ~46%. While it may take time to reverse investor sentiment that remains mixed, Bracelin noted a path for EPS to compound at 13%+ annually to $30+ in 2028.

The rerating reflects new product momentum driving EPS and multiple expansions next year.

Subscription revenue (~95% of sales) has grown surprisingly healthy, with a 9-quarter average of 11.8% (versus 11.9% last quarter) despite elevated macro headwinds, budgetary battles, AI experimentation and competition, the analyst said.

The new Adobe Express Mobile app is resonating with new non-pro users. Quarterly downloads have spiked to 10 million+ (versus 1.3 million on average between the first quarter of 2021 and the first quarter of 2024).

The cRPO backlog steadily improved to $12.5 billion last quarter, with growth rates rising to 12.2% in the third quarter of 2024 from 10.9% in the second quarter of 2024 and 7.7% in the first quarter of 2024.

Bracelin projected fourth-quarter revenue of $5.53 billion and EPS of $4.67.

Price Action: ADBE stock is down 0.08% at $536.04 at last check Thursday.

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