Adobe downside limited from here: KeyBanc

Investing.com -- KeyBanc upgraded Adobe (NASDAQ:ADBE) to Sector Weight from Underweight on Friday, citing limited downside risk and stable fundamentals. 

"We see little room for downside, revisions to fundamentals through the remainder of the fiscal year, and, given that assumption, it is hard to argue for continued multiple compression relative to peers," analysts wrote. 

KeyBanc believes that the shares now appear "fairly valued."

The analysts acknowledged they may have overreacted to Adobe's recent disclosure changes. 

"We were pretty heated last week when the Creative and Document Cloud ARR disclosures were taken away in the 1Q25 print," the note stated. 

While still "bothered" by the change, KeyBanc now sees "merit in the change of presentation" after reviewing additional details from Adobe’s Tuesday Investor Meeting. "Hand up, we overreacted."

However, KeyBanc is not offering an unqualified apology. While Adobe's new revenue breakdown provides some insight into Creative Cloud subscription revenue, the firm remains skeptical about transparency regarding competitive pressures in the non-professional segment. 

"Our ability to estimate the split between Document Cloud revenue contributions and Acrobat and Express contributions are at their highest today, but this will degrade as we get further into the future," KeyBanc warned.

They believe the shift in disclosure could make it more difficult for investors to gauge potential risks in Adobe’s business. 

"The piece of the business that we and investors view as most under threat from competition, the non-creative professional piece of the Creative Cloud, will be harder to discern going forward," the note concluded.

Despite these concerns, KeyBanc believes the stock's valuation is reasonable, prompting its decision to remove its Underweight rating and upgrade Adobe to Sector Weight.