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Bull of the Day: Adobe (ADBE)

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On October 18, Adobe (ADBE - Free Report) hosted a financial briefing with investors and analysts at its Adobe MAX user conference in Las Vegas. There management unveiled the company's growth strategy and outlook for the coming fiscal year beginning December 1.

While Adobe's September 19 report for their fiscal Q3 (ended August) delivered record revenues and a modest 10% earnings beat that inspired analysts to raise EPS estimates slightly for next year, the new financial guidance last week compelled another 4.5% jump in the EPS consensus for 2018 to $5.38.

Highlights of the event included these projections from the company...

Adobe's total addressable market (TAM) for all divisions will hit $83 billion by 2020
Revenue growth of 20% to $8.7 billion
Digital Media segment revenue growth of 23%
Adobe Experience Cloud subscription revenue growth of 20%
Adobe Experience Cloud total revenue growth of 15%
GAAP earnings per share of $4.40
Non-GAAP earnings per share of $5.50 representing approximately 30% growth
Digital Media Annualized Recurring Revenue (“ARR”): approximately $1 billion of net new ARR
Adobe Experience Cloud bookings: approximately 20 percent annual growth

Wall Street Reluctant to Pay for this Growth?

Here's what I told my TAZR Trader subscribers in June when we bought ADBE shares under $145...

It's not even a Zacks #2 Rank yet, but it will be soon after this week's earnings beat and guide above consensus on both sales and EPS. The valuation is rich, but this company has uniquely embedded itself in the creative, marketing and publishing needs of corporate America. Bank of America posted the highest price target raise at $184, Piper Jaffray moved to $180, and JPMorgan upped theirs to $170.

And here was more news this week for our premier "creative digital-studio SaaS powerhouse" that will further embed their platform in ad agencies, media platforms, and corporate in-house branding infrastructure...

Adobe Systems Incorporated today announced it has acquired all SkyBox technology from Mettle, a global developer of best-in-class 360-degree and virtual reality software. The acquisition comes at a time when increasing numbers of creators, global brands and media and entertainment companies are embracing 360/VR and are looking for seamless, end-to-end workflows for this new, immersive medium. The Skybox toolset is designed exclusively for post-production in Adobe Premiere Pro CC and Adobe After Effects CC and complements Adobe Creative Cloud’s existing 360/VR cinematic production technology. Adobe will integrate SkyBox plugin functionality natively into future releases of Premiere Pro and After Effects.

(end of June 22 TAZR commentary excerpt)

Unfortunately, I gave up on ADBE by mid-August as it seemed that investors were just not willing to pay much more than a 30X multiple for being what I called an embedded "creative digital-studio SaaS powerhouse."

Me of little faith. Investors and analysts were jolted by the Adobe presentation in Las Vegas last week and the next day ADBE shares jumped over 12% from $153 to $172.

And Wall Street investment bank ratings and price targets jumped as well...

  • Oppenheimer: Rating from Buy to Outperform and boost PT from $153 to $190
  • Barclays: Overweight and PT from $167 to $181
  • Bank of America: Buy and launch PT from $184 to $213
  • Citigroup: Buy and bump PT from $163 $177
  • Royal Bank Of Canada: Outperform and PT $177
  • Credit Suisse: Outperform and PT from $170 to $190
  • Stifel Nicolaus: Buy and PT from $163 to $175
  • Canaccord Genuity: Buy and PT from $170 $185
  • BMO Capital Markets: Outperform and PT from $165 to $187
  • Piper Jaffray: Buy and PT $195
  • JPMorgan Chase: Buy and PT $185

To understand the digital media growth opportunities, and the product/technology platforms that Adobe will use to capitalize on them, I highly recommend visiting their investor relations website to view the October 18 slide deck with all the details.

Until then, definitely look for dips to buy ADBE. But I don't see it filling the gap back to $153 any time soon, so have a plan ready to buy under $170.

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