ADBE - Adobe Systems
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Trading Call of the Week -- Piper's Munster on Apple:
Trading Call of the Week goes to Gene Munster, analyst at Piper Jaffray, who on Wednesday told shareholders to buy Apple shares on lower-than-expected iPod numbers that hit the tape just ahead of the video iPod launch, resulting in as much as a 13.5% stock gain over two trading sessions.
Before the market opened, Munster warned that Apple (AAPL -- $53.74) shares would trade lower Wednesday, due to iPod unit numbers for September that were below Street expectations. Munster explained that the reported iPod number was hampered by discontinuation of the iPod mini and component constraints for the iPod nano.
Yet Munster specifically suggested that the iPod numbers weakness should be used as an opportunity to buy Apple shares ahead of a series of catalysts, including new product launches and holiday buying. He wrote that that he expected Apple to either launch a video iPod or another smaller form-factor iPod at an event that very same day.
Just as Munster had anticipated, Apple introduced the video iPod as expected. The new devices refreshed one of its key products ahead of the holidays. The company also introduced new 30-gigabyte iPods and 60-gigabyte models that are thinner than the previous 20-gigabyte iPod. Speculation about the new products helped send Apple shares from a trough of $47.87 on Wednesday to an intraday high of $54.35 on Friday.
Following his money-making call on Apple shares, we wanted to know what else Munster saw as a near-term stock opportunity. He recommended Adobe (ADBE -- $29.84) shares, saying that within the next three weeks, he expects the publishing software-maker to provide "high-level guidance" about its integration plans for its planned Macromedia (MACR), acquisition -- details he says will boost the stock.
Munster notes that Adobe hasn't said much yet about integration plans for Macromedia, other than it expects the deal to be neutral in the first year. While many analysts have already published what they cost savings and other factors will look like as a result of the deal, Munster says the numbers should be, "a little better than what Wall Street is expecting."
Another factor that could push Adobe shares higher, he says, is the mid-September release of Adobe's Studio 8 product. While Adobe hasn't given any details on the growth of the product, Munster's checks indicate that it's off to a fast start, and will eventually make up about 15% of Adobe's business.
Adobe shares have been hampered a bit by worries that the anticipated introduction of Microsoft's Metro product, a would-be competitor to Adobe's Acrobat software for publishing digital documents. Yet Munster says that worries about Metro are "a lot of noise." He notes that Adobe generates most of its Acrobat profit on software that helps large companies manage digital documents, rather than software for creating such documents.
Finally, Munster notes that Adobe shares are trading at roughly 26 times next year's earnings. He says the trough multiple for the stock was set about a month ago at 24x forward EPS. He contends that the stock should be trading at a higher multiple, and is likely to head higher over the next three weeks.
Briefing.com Note: There are some key technical levels that ADBE shares must get through in the near-term. We see resistance at the 200-day moving average at about $29.90. The stock must also move through the July high of $30.40, and the October high of $30.66. We think the stock will have cleared through most of that resistance once it reaches the $30.50 to $30.60 area -- Mike Tarsala, mtarsala@briefing.com |
