Shares of Adobe Systems Inc. (ADBE - Free Report) touched a 52-week high of $187.27, eventually closing a bit lower at $187.11 on Jan 10.
The stock has gained 71.7% in last year, substantially outperforming the 36.2% rally of the industry it belongs to. The outperformance can be attributed to the company’s strong fundamentals and solid quarterly results.
Compelling Product Lines
Acrobat is one of the company’s most successful product lines with a huge installed base of satisfied customers. A portion of the business has historically been dependent on GDP growth and it’s doing well, owing to improving economic conditions and stronger IT spending in the United States and Europe. Cloud-based EchoSign solution is also a significant contributor to Acrobat revenues.
Furthermore, Adobe continues to be the market leader in the Digital Media space. Notably, the company has been witnessing robust growth across its Creative Cloud and Adobe Document Cloud segments as evident from the record number of new subscriptions registered during the fourth quarter of fiscal 2017. Notably, the advertising, entertainment and other content-creation markets are becoming increasingly digitalized and in our opinion the company is well capitalizing on this trend.
We believe that Adobe’s Creative Cloud offering, marketed as a subscription model with attractive monthly pricing, will continue to drive revenues in the coming years. Moreover, its strong guidance for the upcoming quarter due to higher demand for its Creative and Marketing Cloud products keeps us optimistic.
Increased adoption of cloud computing, social media and mobile devices, as well as the emergence of big data analytics is benefiting Adobe’s Digital Marketing segment.
To tap the growing opportunity in this space, Adobe has resorted to acquisitions of companies such as Neolane, Omniture, Day Software, Demdose, Auditude and Efficient Frontier. Acquisitions have helped it to provide analytics, experience management, targeting, social relevance and spend optimization.
Adobe is committed to adding new products to its portfolio. At Max Creativity Conference in October 2017, Adobe introduced several applications for design, video and photography segments including Adobe XD, Character Animator abd Lightroom CC.
The company is also working on artificial intelligence and machine learning front. The company has invested heavily in Sensei, its artificial intelligence and machine learning framework and expects to leverage its existing offerings with it.
Positive Earnings Surprise History
The company’s better-than-expected quarterly results for the last several quarters have kept investors optimistic about its growth prospects. Notably, in the trailing four quarters, Adobe has surpassed the Zacks Consensus Estimate with an average positive earnings surprise of 9%.
The stock has witnessed upward earnings estimate revision for the first quarter and fiscal 2018 in the last 30 days. For the first quarter, the Zacks Consensus Estimate is pegged at $1.26 per share, up 2 cents from $1.24 projected 30 days ago. Similarly, for fiscal 2018, the consensus estimate has moved up by 2 cents to $5.49 over the same time frame.
Given Adobe’s dominance in the creative cloud space, its leading position in the Marketing Cloud and strong margin growth, we expect the company to continue to report strong results in the near future. Its creative cloud offering, marketed as a subscription model with attractive monthly pricing, will continue to be a catalyst for revenue growth in the coming years.
Zacks Rank & Stocks to Consider
Adobe Systems carries a Zacks Rank #3 (Hold).
Broadcom Ltd. (AVGO - Free Report) , Micron Technology (MU - Free Report) and NVIDIA Corp. (NVDA - Free Report) are some of the top-ranked stocks in the broader technology sector. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for Broadcom, Micron and NVIDIA is currently projected to be 13.8%, 10% and 10.3%, respectively.
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