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Adobe Systems Incorporated (ADBE), Citrix Systems, Inc. (CTXS), Autodesk, Inc. (ADSK): It’s Time to Go Sour on This Software Company

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Adobe Systems Incorporated (NASDAQ:ADBE) got a nice 5.5% pop in its stock last week, even after reporting fiscal 2Q EPS that fell 66% year-over-year. Although earnings were down due to weak product sales and rising operating expenses, the software company managed to beat consensus by 5% and reiterated positive news on its move from packaged software to the cloud.

Adobe Systems IncorporatedAdobe Systems Incorporated (NASDAQ:ADBE) now offers the Creative Cloud, which allows customers to to pay a monthly fee to subscribe to applications, such as Photoshop, Illustrator, Dreamweaver and others. This new model offers flexibility for its users and Adobe announced it had 700,000 paid Creative Cloud subscribers at the end of the quarter, a 221,000 increase from the end of 1Q.

As a result, the digital-media segment saw revenue down 17.5% as users shifted to subscriptions from perpetual licenses. The move to a subscription base does have its downside. Adobe Systems Incorporated (NASDAQ:ADBE) will now be collecting revenue over a period (i.e. monthly) versus a lump sum.

Following 2Q results, analysts lowered their fiscal 2014 EPS by $0.04, from $1.75 to $1.71. With the transition, it doesn’t appear that Adobe Systems Incorporated (NASDAQ:ADBE) should trade at a premium valuation to the industry, which it currently trades at.

Adobe might not be the best of investments following the run up in the stock price; let’s have a look at some investment ideas for gaining access to the popular tech software sector.

Virtualization

Citrix Systems, Inc. (NASDAQ:CTXS) is a leading developer and supplier of access infrastructure software and services. The company should continue to grow nicely over the interim as more and more companies turn to real-time collaboration services. Revenue is expected to be up 14% in 2013 thanks to Citrix Systems, Inc. (NASDAQ:CTXS)’s strong presence in the cloud computing and desktop virtualization space.

Citrix Systems, Inc. (NASDAQ:CTXS) is a leader in remote connectivity, this includes a service that you’ve probably used before, GoToMeeting. Its product and license updates/maintenance revenue should be  pushed higher thanks to a growing customer base. Citrix also has partnerships with some of the largest tech companies in the world, including Cisco Systems, Inc. (NASDAQ:CSCO), Dell Inc. (NASDAQ:DELL), Hewlett-Packard Company (NYSE:HPQ) and Microsoft Corporation (NASDAQ:MSFT).

The stock did pull back following weak 2Q results, now down over 15% during the past three months, but I view this as a great buying opportunity. The stock trades at a trailing P/E of 32 times, but its forward ratio is only 16.5 times, suggesting investors might be underestimating Citrix Systems, Inc. (NASDAQ:CTXS)’s EPS growth.

Design

Autodesk, Inc. (NASDAQ:ADSK) develops, markets and supports design software, specifically for the manufacturing and construction industry. Autodesk, Inc. (NASDAQ:ADSK), like its software peers, is looking to adopt cloud and mobile computing. The company plans to offer its software via a could-based model.

However, this transition could take more time than say Adobe Systems Incorporated (NASDAQ:ADBE)’s, where Autodesk, Inc. (NASDAQ:ADSK) caters to the manufacturing and industrial markets, which can be laggards in technology adoption. Management has a lackluster outlook for fiscal 2014 given the weakness in spending on technology.

Autodesk, Inc. (NASDAQ:ADSK) also posted weak 1Q EPS results, where earnings fell 30% year-over- year. Operating margins were also down from 16% to 14.3% year-over-year. Since the announcement, analysts have lowered their consensus fiscal 2014 EPS by 8%, now expected to come in at $1.95, basically flat year-over-year from fiscal 2013.

Big Blue

International Business Machines Corp. (NYSE:IBM) operates three major segments, global services, software and systems. International Business Machines Corp. (NYSE:IBM), also known as Big Blue for its blue packaging, is looking to move away from low-margin hardware to the higher-margin software and services business. In 2012, hardware only accounted for 17% of sales, and its services segment accounted for 56% and software 24%.

The other big positive for International Business Machines Corp. (NYSE:IBM) shareholders is the company’s ability to return cash to shareholders. From 2000 to 2012, International Business Machines Corp. (NYSE:IBM) returned some $150 billion to shareholders in the form of dividends and share repurchases. I like IBM as a long-term buy, in part because of its solid record for buybacks, which has helped boost the tech company’s return on equity to over 80%.

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