Adobe (ADBE) showed signs of stabilization in fiscal Q1 core business amid the resignation of long-time Chief Executive Shantanu Narayen, Morgan Stanley said in a report Friday.

The note said headline metrics were solid, with revenue accelerating, and the top and bottom line surpassing consensus.

But net new annual recurring revenue was down about 11% year-over-year, pointing to headwinds from the traditional Stock business as well as timing of freemium monetization, it said.

The report said ARR guidance implies an inflection in H2 net new ARR as monetization initiatives convert more materially.

"While valuation remains undemanding at 1.0x PEG, we remain EW, awaiting greater evidence of an improvement in growth trajectory to quell AI competition concerns," the note said. PEG refers to price/earnings-to-growth ratio, and EW is equalweight.

Morgan Stanley cut its price target to $365 from $425.

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