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Adobe Gets Authorization to Repurchase Shares Worth $2.5B

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In an effort to enhance shareholders’ return and lessen dilution from stock issuance, Adobe Systems Incorporated’s (ADBE - Free Report) board authorized the company to buy back up to $2.5 billion worth of shares, which can be executed through the end of fiscal 2019.

The repurchases may be made through both public market and structured share repurchase agreements with third parties.

Over the last two years, the stock has strongly outperformed the Zacks Computer Software industry. It returned 50.56% compared to the industry’s gain of 23.50%.

Rewarding Shareholders

Adobe has a strong capital management policy in place. The company remains committed to providing value to its shareholders by focusing on its Creative Cloud, Document Cloud and Marketing Cloud businesses.

Its initiatives are well supported by its strong balance sheet and solid cash flow generation, which in turn is driven by sustained solid operational performance. This enables it to return value to its shareholders through the share repurchase program.

The company’s regular share buyback activity is a good way of building investors’ confidence. Share repurchases benefit a company’s earnings per share, book value as well as shareholder equity, as shares outstanding reduce.

Adobe Systems Incorporated PE Ratio (TTM)

The Driving Forces

During the recently concluded fiscal fourth quarter, Adobe generated $695.6 million in cash from operations. Cash and investment balances were $4.76 billion compared with $4.45 billion at the end of the previous quarter. (See More:  Adobe Beats Earnings and Revenue Estimates in Q4)

It repurchased approximately 3.2 million shares for a total of $331 million. Adobe still has $500 million remaining under the current authority granted in Jan 2015.

The company has recently raised its financial targets to reflect its TubeMogul acquisition. It raised first quarter fiscal 2017 total revenue guidance to $1.644 billion from the prior guidance of $1.625 billion provided at the fourth quarter earnings call. For fiscal 2017, management expects revenues of $7.09 billion, up from the prior expectation of $6.95 billion.

The company expects that the TubeMogul acquisition will increase Adobe Cloud Marketing revenue growth in the first quarter from the prior expectation of 20% to 24%. Annual Adobe Cloud Marketing revenue is expected to grow at a rate of 25%, up from the prior expectation of 20%. (See More:  Adobe Raises Revenue Guidance After TubeMogul Acquisition)

Adobe expects the acquisition to be neutral to its non-GAAP earnings in fiscal 2017 and thus reiterated its earnings expectations.

Zacks Rank and Stocks to Consider

Adobe is a Zacks Rank #3 (Hold) stock.

Better-ranked stocks in the broader technology sector include Seagate Technology plc (STX - Free Report) , Check Point Software Technologies Ltd. (CHKP - Free Report) and Exa Corporation , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, while the consensus estimates for Exa increased 35.3% in the past 60 days, the same for Seagate and Check Point increased 0.53% and 0.24%, respectively over the same time frame. 

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