Stock Picks: Adobe, eBay, Novartis

Wall Street analysts offer buy, sell, or hold opinions on stocks in the news on Sept. 22

Adobe Systems: Credit Suisse equity analyst Philip Winslow lowered a rating on shares of Adobe Systems (ADBE) to neutral, from outperform, on Sept. 22. He also lowered a price target on the shares to $32.50, from $39.

On Sept. 21, Adobe, the top maker of graphic-design software, forecast sales that trailed estimates, citing slower demand from back-to-school shoppers and Japanese buyers. The shares tumbled as much as 16 percent in late trading on Sept. 21 following the report.

Fourth-quarter revenue will be $950 million to $1 billion, San Jose-based Adobe said in a statement. Analysts surveyed by Bloomberg had on average projected sales of $1.03 billion for the period, which lasts through November.

Adobe's new Creative Suite 5 software, released in April, isn't driving as much growth as analysts had predicted. Cash-strapped schools aren't paying for as many copies of the product, which includes Photoshop and Illustrator, the company said. The sluggish economy in Japan, typically Adobe's biggest Asian market, also is hampering sales.

Profit in the current quarter will be 48¢ to 54¢ a share, compared with analysts' average estimate of 53¢.

Net income in the third quarter, which ended on Sept. 3, rose to $230.1 million, or 44¢ a share, from $136 million, or 26¢, a year earlier. Sales increased to $990.3 million. Analysts had projected profit of 49¢ on revenue of $985.4 million.

Adobe reported "solid" revenue for its fiscal third quarter vs. consensus estimates, Winslow said in a note. He went on to say that "underlying metrics were mixed," citing weakness in Europe and Japan for Creative Suite 5 and a lower order backlog for Adobe's products.

Winslow said improved expense control should alleviate some investor concerns related to limited growth in the company's operating margin. "Given Adobe's stated intention during [its second-quarter] conference call to accelerate spending in [sales and marketing], Adobe's revenue growth outlook in the near-to medium term is less clear," he said.

The analyst raised earnings per share (EPS) estimates for fiscal 2010 (ending November) to $1.90, from $1.84, and for fiscal 2011 to $2.07, from $2.06. He lowered an EPS forecast for fiscal 2012 to $2.35, from $2.41.

eBay: Janney Montgomery Scott equity analyst Shawn Milne maintained a buy rating and $29 fair value estimate on shares of eBay (EBAY) on Sept. 22.

On Sept. 21, eBay, the most-visited U.S. e-commerce site, said in a statement that third-quarter results will be at the high end of forecasts issued in July. The company projected sales of $2.13 billion to $2.18 billion and earnings, excluding some costs, of 35¢ to 37¢ a share.

In a note, Milne said his estimates for the quarter were for $2.166 billion in revenue and 37¢ in EPS.

"[W]e believe eBay's play book of driving traffic to its top-rated sellers should ultimately improve the buying experience," the analyst said. Milne added that "increased selection and an improved buying experience should begin to stem market share losses" for eBay in the U.S. He said he continues to expect strong growth at the company's PayPal payment-processing unit, driven by growth at its merchant services business.

Novartis: Miller Tabak equity analyst Les Funtleyder reiterated a buy rating on American depositary shares of Novartis (NVS) on Sept. 22. He raised a price target on the ADS to $65, from $58.

On Sept. 22, Novartis won U.S.regulatory approval to sell its multiple sclerosis medicine Gilenya, beating Merck KGaA (MRK:GR) in a race to market the first pill to slow the crippling disease.

The Food and Drug Administration cleared the treatment for use against relapsing forms of multiple sclerosis, the Basel (Switzerland)-based company said in a statement. A doctor will have to watch patients for six hours after they take their first dose of Gilenya, Novartis said.

Regulators said doctors can prescribe the drug as the first treatment for MS patients, making it competitive with standard drugs such as Biogen Idec's (BIIB) Avonex, Merck's Rebif, and Teva Pharmaceutical Industries' (TEVA) Copaxone.

"Given that the current market [for MS drugs] is in the multiple billions in size and that Gilenya is the first oral agent, we would expect the drug to become a blockbuster," Funtleyder said in a note. He said he thinks the launch of Gilenya will happen slowly, as "a good portion of MS patients who are well-controlled on current treatment are reluctant to switch".

Funtleyder said his increase in the price target reflected his confidence in the company's revenue potential, along with "additional … catalysts" in its product pipeline and the pending completion of its acquisition of eye-care products maker Alcon (ACL).

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