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Tuesday, September 15, 2020

Which direction will Adobe’s share price take after earnings?

by Century Financial in Brainy Bull

Which direction will Adobe’s share price take...

Adobe’s [ADBE] share price has managed to maintain a steady trajectory for most of 2020.

Despite a significant slump that pushed it as low as $283 before closing at $285 on 12 March — the stock’s lowest closing value so far this year — Adobe’s share price has since gone on to experience some exceptional gains.

Adobe’s share price hit an all-time high of $536.88 during intraday trading on 2 September, before closing at $533.80 — up 61.85% year-to-date.

Although Adobe’s share price has since fallen 11.7% to close at $471.35 on 11 September, the stock is still up 40.94% year-to-date.

As the company prepares to announce its third-quarter earnings, due 15 September, what should investors expect for Adobe’s share price?

Q2 results send Adobe’s share price down

When Adobe released its second-quarter results on 11 June, it reported earnings of $2.45 per share, which surpassed the Zacks consensus estimate of $2.35, marking a 4.3% surprise. This figure represented an increase of 7.9% from the previous quarter and 28.4% year-on-year - it was also the fourth consecutive quarter where Adobe beat earnings estimates.

For the quarter ended 29 May, Adobe posted revenue of $3.13bn, up 14.2% year-on-year, but missing consensus estimates by 1.5%.

Despite the company’s second-quarter earnings beating expectations, the stock fell 4.71% due to lower-than-anticipated guidance for the third quarter.

In a statement released alongside the results, Shantanu Narayen, president and CEO said: “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”

“We drove record Digital Media net new ARR [annualised recurring revenue] for Q2, highlighting how mission-critical creative and document solutions are in engaging remotely,” he added. ARR grew by $443m during the quarter, pushing its total to $9.17bn, while creative ARR grew to $7.93bn.

Looking ahead to the upcoming earnings call, analysts are expecting Adobe to post earnings of $2.40 per share, which would represent a growth of 17.07% year-on-year. As for revenue, analysts expect Adobe to have generated $3.15bn for the quarter, an 11.24% growth from the same time last year.

For the full year, Zacksexpect earnings of $9 77 per share and revenue of $12.71bn — up 24.14% and 13.81%, respectively, from last year.

Is Adobe a buy or a hold ahead of earnings?

Following the release of its second-quarter earnings, Cowen boosted its target for Adobe’s share price from $365 to $400, and gave it a "market perform" rating, according to MarketBeat. However, analysts at Oppenheimer have a more bullish outlook, setting a $430 price target and a Buy rating on Adobe stock on 12 August.

Adobe has a consensus Hold rating from Zacks Equity Research, which is less optimistic than the consensus among 27 analysts polled by CNN Money to Buy the stock. This rating is held by a majority of 16 analysts, with only eight suggesting to Hold, two giving it an Outperform rating and one rating it a Sell.

The median 12-month price target among 23 analysts polled by CNN Money is $440, with a high estimate of $575 and a low of $375. The median price represents a 6.7% decrease from Adobe’s 11 September closing price.

“Adobe's record revenue during the quarter wasn't a fluke, either. The company has produced record revenue in every quarter going back more than five years ” said Danny Vena, writing for The Motley Fool.

“Is Adobe stock a buy? I'd argue the answer is an unqualified yes,” he continued. “Even at a rather pricey valuation, investors have been willing to pay up for quality. The company's legacy business is still growing at an impressive rate, while its more recent forays into enterprise, e-commerce, and marketing have long runways ahead.”

Source: This content has been produced by Opto trading intelligence for Century Financial and was originally published on cmcmarkets.com/en-gb/opto

Disclaimer: Past performance is not a reliable indicator of future results.

The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Century Financial or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Century Financial does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and Century Financial shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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