Top Wall Street Analyst Cuts Price Targets on Large-Cap Software Leaders

After technology, and specifically software, outperformed in a big way in 2020, the tables are finally starting to turn. While the top companies in the industry are still the place to be, some of the stratospheric price targets are being brought down, and with good reason. Despite the recent selling pressure on the group, the top stocks are still trading above their six-year average, and the compression in multiples looks like it will continue in the space.

In a new Jefferies research report, outstanding software analyst Brent Thill and his team have lowered the price targets on some of the top stocks. While they retain Buy ratings on many of the leading companies, they are lowering price targets on 70% of the stocks in their coverage universe. The report said this:

Valuations have taken a near-term breather contracting 19% year-to-date versus expanding 56% in 2020, 26% in 2019 and 7% in 2018. Valuations for quality software names are still 15-20% above trough levels (~5x revenue). Overall valuations are at 9.9 the next 12 months revenues or 10% above 9x (1 standard deviation above average) indicating some more near-term downside. We continue to be positive long-term, given the strong fundamentals. Multiples have contracted 19% in 2021. Quality names are still 15-20% above trough levels (5 times revenue). Fundamentals are still very strong in the space as evidenced by multiple prints.

It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Adobe Systems

Shares of this high-profile legacy software company have backed up some, offering investors a solid entry point. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments: Digital Media, Digital Marketing and Print and Publishing. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.

Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Flagship products include Creative Suite, Photoshop, Acrobat, Premiere, Dreamweaver, Illustrator, InDesign and LiveCycle. PDF and flash technologies from the company have become industry standards and act as a platform for other Adobe products.

Jefferies lowered its $610 price target on the shares to $560, below the Wall Street consensus target of $571.43. Wednesday’s final Adobe Systems stock trade was at $480.47 a share.

Intuit

This company hits all the metrics in the technology sector for accounting needs. Intuit Inc. (NASDAQ: INTU) is a provider of business and financial management solutions for small and medium-sized businesses, financial institutions, consumers and accounting professionals.

Products and services include TurboTax, QuickBooks, Quicken, small business financial management and payroll processing, personal finance and tax preparation and filing and online banking services through its Digital Insight acquisition. Intuit also offers products on a software as a service (SaaS) platform across all its business divisions.

Intuit has served small businesses and accountants with QuickBooks for more than 20 years. The company was an early innovator in cloud accounting when it first launched QuickBooks Online in 2001. QuickBooks Online has more than a million paying subscribers, cementing its market leadership as small businesses shift to the cloud.

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