Bank of America downgrades Adobe, says stock is a 'show me story' as it awaits clarity on latest acquisition

Published Fri, Sep 16 20226:43 AM EDTUpdated Fri, Sep 16 20226:44 AM EDT

Bank of America is bailing on shares of Adobe — at least until it gets further clarity on its latest acquisition. Analyst Brad Sills downgraded shares of the technology company to neutral from buy, saying in a note to clients that the stock is a "show me story" as its deal to purchase design software firm Figma awaits a close. "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," he said. Adobe said Thursday it plans to purchase Figma in a cash and stock deal worth $20 billion. In its last funding round, the company was valued at just $10 billion . On the back of the news and its fiscal third-quarter earnings results, Adobe's stock dropped about 17% — marking its biggest one-day drop in over a decade. Going forward, Sills sees long-term value in Adobe's purchase of Figma, especially given its proven track record of utilizing acquisitions to support its market position. But near-term tailwinds remain murky. "The 3yr horizon for accretion suggests little [near-term] rev/operating income synergy," Sills said. "Also, the steep valuation (50x C22 rev), suggests that Figma represents a formidable competitive threat stand alone." Sills slashed his Adobe price target to $350 per share from $450. The new target implies upside of 13% from Thursday's close. Along with Bank of America, Barclays' Saket Kalia downgraded Adobe to equal weight from overweight, saying in a note to clients that he expects earnings per share growth to stall over the next year. "We think ADBE does have levers on this dilution, so ball is in their court - but this deal makes it hard to argue for multiple expansion, and with little EPS growth next year, we think this performs in-line with our coverage rather than out-performing," he said. Adobe's stock is down more than 45% this year and sits about 56% off its 52-week high. Shares fell another 2% in premarket trading Friday. — CNBC's Michael Bloom contributed reporting