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Adobe Continues to Deliver Growth at A Value

Stock (Symbol)

Adobe Systems (ADBE)

Stock Price

$98

Sector
Technology
Data is as of
July 25, 2016
Expected to Report
Sept 20
Company Description
adobe_red_logoAdobe Systems Incorporated (Adobe) is a software company. The Company offers products and services for professionals, marketers, application developers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content. Adobe markets and licenses its products and services through app stores and its Website www.adobe.com. The Company’s operates in three segments: Digital Marketing, Digital Media, and Print and Publishing. In Digital Media, the Company is engaged in providing tools, services and solutions that enable to create, publish and promote their content. In Digital Marketing, the Company is engaged in providing solutions and services for creating, managing, executing, measuring and optimizing digital advertising and marketing campaigns. Adobe’s Print and Publishing segment addresses various market opportunities, including eLearning solutions, technical document publishing, Web application development and high-end printing. Source: Thomson Financial
Sharek’s Take
David SharekAs the years have passed, I have become more appreciative of companies which can produce with a high level of certainty, because it’s often the stocks that don’t produce expected growth targets which cause me the most pain. That’s why I think glowingly of Adobe (ADBE). Adobe has molded itself from a software-in-a-box model to a steady subscription model. Thus, I can sleep better at night with ADBE’s consistent revenue stream. Adobe’s subscription revenue is up from 27% in 2012 to 73% in 2015, and this will allow for more steady profit growth than the company had years ago. Digital video will be the #1 thing people do with their spare time, and Adobe’s software is used by the movie makers and digital marketers to make videos. Adobe’s Digital Media division is the company’s largest and includes Adobe Photoshop as well as other programs to make pictures and videos. The company’s second largest division is Digital Marketing, where Adobe’s Marketing Cloud measures $7.50 of every $10 spent online with the top 500 US retailers. ADBE is expected to grow profits a stout 38% this year, yet the stock’s P/E is a reasonable 34. I hold this stock in high regard — it is one of my largest positions.
One Year Chart
ADBE_2016_Q2Last qtr Adobe clocked in with 48% profit growth on a 20% increase in sales. Stupendous results once again, yet Wall Street was disappointed management didn’t up guidance. The company did beat the street once again. What’s I am impressed with is profits climb higher each qtr. Here’s ADBE’s profits the past 8 qtrs: $0.28, 0.36, 0.44, 0.48, 0.54, 0.62, 0.66 and 0.71. Some of the best stocks of our time had profits that hit record highs each and every qtr. Estimates for the next 4 qrs are $0.72 (33% growth), $0.77 (24%), $0.85 (29%) and $0.91 (28%).
Fair Value
ADBE_2016_Q2_PHAdobe is expected to deliver 38% profit growth this year, and my Fair Value is 40x earnings. The stock is undervalued in my eyes, and I think it has solid upside when we look out to next year. 
Bottom Line
ADBE_2016_Q2_10yrAdobe software is leading the new digital age. This stock has a lot of positive attributes including a steady stream of revenue growth, record profits each qtr, and strong forward looking estimates. This continues to be one of my favorite stocks, and I think it should be higher than it is. ADBE ranks 3rd in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

3 of 38

Aggressive Growth Portfolio

3 of 16

Conservative Stock Portfolio

N/A

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