BofA/Merrill Lynch Cautions on Software Valuations with Downgrades

Hand plugging ethernet cable into wall socketIn this morning's top analyst upgrades and downgrades feature, which we run each morning, Bank of America/Merrill Lynch downgraded both Adobe Systems Inc. (NASDAQ: ADBE) and Intuit (NASDAQ: INTU) in the server and enterprise software segment. What is interesting is that both downgrades are not just on valuation. They include higher price targets on the two stocks.

As far as Adobe Systems Inc. (NASDAQ: ADBE), this was cut to Neutral from Buy, but the price target was raised to $45 from $40. BofA's Kash Rangan said that its transition of the creative business to a subscription model is playing out and as it has approached the target price.

The Adobe report said:

We continue to see Adobe as a leading provider of Creative tools and are equally impressed by the evolution and growth prospects of Digital marketing business. However, the stock at ~$42 leaves limited room for upside in our opinion and our price objective goes to $45 from $40… Longer term, as HTML5 gains adoption, we see Adobe as well positioned with tools like Edge and Muse, and its PhoneGap acquisition to support cross-platform content creation.

Intuit Inc. (NASDAQ: INTU) was cut to Neutral from Buy, but its stock price target was raised to $71 from $65. The firm supports management and the ability to execute, although the stock is up 180% over the past four years, and it is said to be baking in a solid tax season already.

On Intuit, BofA noted positive trends for H&R Block Inc. (NYSE: HRB). It said:

Latest tax data from H&R Block indicated it grew faster than INTU in February, and if this trend persists through the season, it may risk INTU's tax units' goal. However, we think it is still early and Intuit is likely to make up for any share losses later.

Intuit's stock has fallen further on this downgrade and is down by 2.2% at $66.26, against a 52-week range of $53.38 to $68.41. Adobe's stock price is down 0.6%, at $41.25 against a 52-week range of $29.52 to $41.91.

Filed under: 24/7 Wall St. Wire, Analyst Calls, Software, Technology, Technology Companies Tagged: ADBE, featured, HRB, INTU
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