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Buy Adobe Stock Before Earnings with Cloud Software Giant at New Highs?

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Stocks surged Friday on the back of better-than-expected May jobs data that helps justify Wall Street’s continued ability to look beyond the coronavirus downturn to the recovery. Tech stocks have helped drive the broader rally from the market’s March 23 lows, and some of the blue-chips are now trading at or near new highs, which includes Adobe (ADBE - Free Report) .

Adobe jumped nealry 2% Friday to hit a new all-time high, less than a week ahead of its Q2 fiscal 2020 earnings release on Thursday, June 11.  

Cloud Software Niche

Adobe sells a variety of cloud-based offerings, including its suite of creative and design software such as Photoshop, Illustrator, Lightroom, and many others. The company’s various creative software is often considered irreplaceable by its users and are sold on a subscription basis for individuals, businesses, and schools. ADBE also offers bundle packages and its Creative Cloud offering can be viewed in a similar light as Microsoft’s (MSFT - Free Report) Office suite.   

The San Jose, California-based firm breaks its revenue streams down into three general categories: Creative Cloud, Document Cloud, and Experience Cloud. Investors should also note that Adobe has bolstered its business-focused platforms and solutions for marketing, commerce, and more. And let’s not forget its PDF and e-signature space.

Adobe’s fiscal 2019 revenue climbed 24% to $11.17 billion. This marked its fourth straight year of between 22% and 25% revenue growth. More recently, ADBE topped our Q1 fiscal 2020 earnings estimate in March and posted record quarterly revenue of $3.09 billion, up 19%.









Other Fundamentals

ABDE stock hit new highs Friday of $396.17 per share, with Adobe up nearly 40% since mid-March. The stock has also climbed nearly 20% in 2020 to crush the tech sector’s 6% expansion. Over the last five years, ABDE has skyrocketed 400% and has outpaced Netflix (NFLX - Free Report) , Apple (AAPL - Free Report) , and MSFT in the past three years.

Despite resting at new highs, Adobe is trading a slight discount against its year-long highs in terms of forward 12-month sales at 13.3X vs. 13.6X. It is worth noting that Adobe has consistently traded at a premium compared to its industry over the last three years.

On top of that, Adobe’s cloud-based offerings are relatively unique in a crowded cloud software market that spans from Salesforce (CRM - Free Report) to Workday (WDAY - Free Report) and far beyond. Adobe is also currently a Zacks Rank #3 (Hold) that sports “A” grades for both Growth and Momentum in our Style Scores system.

Bottom Line

Looking ahead, our Zacks estimates call for ADBE’s second quarter revenue to jump 15.7% to reach $3.17 billion. And its full-year fiscal 2020 sales are expected to surge over 16%, with FY21 projected to climb another 15% higher to hit $14.90 billion.

On the bottom-end of the income statement, its adjusted Q2 earnings are projected to pop 28.4% to come in at $2.35 a share. Adobe’s adjusted EPS figures are then expected to climb 24.4% and 13.5%, respectively over the next two fiscal years.

Adobe’s earnings beat history is solid and it’s clearly poised to expand despite the rough economic conditions. Some investors might want to hold off on buying a stock at new highs in order to wait for a pullback, of which there certainly could be post-earnings. Yet, longer-term investors might want to consider thinking about Adobe for its ability to expand for years to come within a niche cloud software space.

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