Adobe Helps People Deliver in a Digital Age

Stock (Symbol)

Adobe Systems (ADBE)

Stock Price


Data is as of
January 14, 2017
Expected to Report
Mar 16
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 SharekAdobe (ADBE) is the worldwide leader in digital media & marketing solutions. Years ago, Adobe customers used to purchase Adobe products in boxes at a computer store, and profit growth was erratic year-to-year. Now the company has molded its business into a steady subscription model, and is delivering steady sales and profit growth. 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 has two main divisions: 

  • Digital Media is the largest division at around 2/3rd of sales and includes Adobe Creative Cloud which delivers cloud-based services for creating digital media, as well as Adobe Document Cloud, which provides a modern way to manage paper-to-digital document storage. In November it launched Adobe Creative Cloud for teams in China, one of the world’s largest digital economies.
  • The Digital Marketing division includes Adobe’s Marketing Cloud, which is the best-in-class solution for digital marketers that allows them to analyze data, build campaigns, and manage content. Adobe measures 80% of all online transactions from the top 100 US retailers, and $7.50 out of every $10 spent online with the top 500 US retailers go through Adobe Marketing Cloud.

ADBE’s qtrly profits have climbed from $0.28 to 0.36, 0.44, 0.48, 0.54, 0.62, 0.66, 0.71, 0.75 and $0.90 the last ten qtrs. Management predicts 2015-2018 sales and profit growth of +20% and +30% respectively and analysts have an Est. LTG of 31% a year. Adobe is one of my favorite stocks because of its strong profit growth and high certainty due to recurring revenue. At 28x earnings, it has growth and value. 

One Year Chart
Last qtr this stock broke out after reporting and was at All-Time highs when I wrote the research report. But then the Trump presidential victory caused money to flow into banks, and that sent growth stocks back. Now ADBE is close to breaking out once again, and with profit growth of 45% last qtr and a 28 P/E this stock could go on a serious run higher. Sales grew 23% last qtr with 82% recurring revenue. Profit Estimates for the next 4 qtrs are 32%, 28%, 28% and 20%.
Fair Value
I took my Fair Value P/E from 40x to 35x because I didn’t see investors giving the stock that high of a valuation. Even with a P/E of 35 there’s still a lot of upside to the stock’s Fair Value. This is a long-term growth story, so even if ADBE hit these targets I would likely continue to hold.
Bottom Line
Adobe Systems has transformed itself for the digital age, with state of the art products and solutions for media as well as marketing. ADBE stock is also vastly different from years ago. It has gone from a stock that went nowhere every year to one that has climbed steadily. This company is expected to grow profits 30% long-term and its stock is undervalued at just 28x earnings. This is one of my favorite stocks because of its strong profit growth and high certainty due to recurring revenue. ADBE ranks 3rd in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

3 of 34

Aggressive Growth Portfolio

3 of 18

Conservative Stock Portfolio


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