Morgan Stanley (NYSE:MS) reiterated its Equalweight rating and $382.00 price target on Adobe Systems Incorporated (NASDAQ:ADBE) ahead of the Q1/23 earnings announcement, scheduled on March 15 after the market close.
Bloomberg reported on February 23, 2023, that the Justice Department (DOJ) is preparing to file an antitrust lawsuit against Adobe, seeking to prevent its acquisition of Figma. This news caused Adobe's stock to drop by approximately 7%, as investors worried that the acquisition would be blocked, thereby hindering Adobe's efforts to boost growth in its Creative Cloud business. Consequently, Adobe's stock underperformed large-cap software by over 10% year-to-date.
Given that it typically takes around 200 days for regulatory cases to be resolved from the potential announcement date of a lawsuit, investors are unlikely to gain much clarity on the final decision in the near term, which Morgan Stanley views as a significant regulatory overhang on Adobe's stock, near-term.
In response to the Bloomberg report, an Adobe spokesperson told CNBC via email that they are engaging in constructive and cooperative discussions with regulators in the US, UK, and EU, among others, and they still expect to close the transaction in 2023, in line with their previously stated guidance.
Nonetheless, with Adobe's YTD underperformance, CIOs anticipating an increase in spend with Adobe in 2023, a mostly de-risked Digital Media (DM) guide, and a resilient Digital Experience, the firm believes that Adobe's Q1 earnings could have a favorable fundamental setup.
By Davit Kirakosyan