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Adobe Earns Several Downgrades as $20 Billion Figma Deal is a Near Term Overhang

Stock Markets Sep 16, 2022 07:56
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By Senad Karaahmetovic

Analysts described Adobe's (NASDAQ:ADBE) $20 billion deal to buy design firm Figma as “extremely expensive”, with the cost of financing the deal pushing several firms to downgrade the stock.

For Jefferies analysts, the Figma deal “looks pricey vs. expected year-end ARR of $400M.” A Bank of America analyst cut the rating to Neutral from Buy with a price target of $350 per share from $450. He sees Adobe now as a “show me story.”

“The 3yr horizon for accretion suggests little NT rev/operating income synergy. Also, the steep valuation (50x C22 rev), suggests that Figma represents a formidable competitive threat stand alone. While shares are trading at a low 15x C23e FCF (0.9x our +17% y/y C23e FCF), in line with large cap peers, we believe the proposed acquisition is likely to represent an overhang until deal close and the value of a such a large acquisition (14% of market cap) becomes more clear,” the BofA analyst said in a client note.

Similarly, a Barclays analyst downgraded to Equal Weight from Overweight with a $340 per share price target, down from $440. The three key reasons behind the downgrade are:

  1. Ex-deal EPS estimates could be pushed out by a year;
  2. 10/18 FA Day could be a catalyst for numbers going down; and
  3. ADBE could under-promise and over-deliver on the EPS dilution and still perform in-line.

Elsewhere, analysts at Oppenheimer and Baird also downgraded Adobe.

Adobe shares closed 16.79% lower yesterday and are further down 2.3% in pre-open Friday.

Adobe Earns Several Downgrades as $20 Billion Figma Deal is a Near Term Overhang
 

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