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Adobe’s Numbers Look Amazing

October 15, 2018 / By /
Stock (Symbol)

Adobe Systems (ADBE)
Stock Price

$176
Sector
Technology
Data is as of
October 22, 2017
Expected to Report
Dec 14
Company Description
adobe_red_logoAdobe Systems offers products and services for professionals, marketers, application developers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content. The Company’s operates in three segments: Digital Marketing, Digital Media, and Print and Publishing. Source: Thomson Financial
Sharek’s Take
David SharekAdobe’s (ADBE) numbers look amazing. And even though the stock is up big this year, I foresee continued success into 2018. Here’s ADBE’s profits the past 4 qtrs, with Estimates for the next 4 qtrs (estimates are marked with e):

  • $0.90, beat by 4 cents
  • $0.94, beat by 7 cents
  • $1.02, beat by 7 cents
  • $1.10, beat by 9 cents
  • $1.16e, upped by 6 cents
  • $1.24e, upped by 7 cents
  • $1.32e, upped by 9 cents
  • $1.40e

Now there’s a few bright spots here. First, profits are at an All Time high every qtr. Only up, never down. Second, when we look at Estimates one has to assume ADBE will do better than expectations. Third, profit growth year-over-year has averaged 45% the last 4 qtrs. Estimates are for 29% growth the next 4 qtrs and could easily be 40% when its said and done. 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 and market images and videos. Adobe has the following divisions: 

  • Digital Media is the largest division at 2/3rds 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. Last November Adobe launched Adobe Creative Cloud for teams in China, one of the world’s largest digital economies.
  • Digital Marketing is the 2nd division with 1/3rd of sales and 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.
  • Print and Publishing only accounts for only around 3% of sales, and helps magazine, newspaper and book publishers design layouts, graphics and illustrations.

Management also spent $300 million to buy back 2 million shares last qtr. Since my report last qtr ADBE’s P/E has jumped from 35 to 42. But a P/E of 42 is my Fair Value, so I don’t think the stock is overpriced at all. The stock was $176 when these charts were developed. My 2018 Fair Value is $230 and 2019’s is $277. Adobe’s software is making the Internet work.
One Year Chart
Last qtr ADBE delivered 26% sales growth as profits surged 47% and blew past the 35% estimate. Qtrly profit Estimates for the next 4 qtrs are 29%, 32%, 29% and 27%. Adobe has surged this year and the latest breakout makes the stock extended on a technical basis. I would let the stock simmer down before buying in.
Fair Value
ADBE used to sell its software out of the box, and has transitioned to a subscription model. So these profit figures from past years need to be taken with a grain of salt. My Fair Value is a P/E of 42, but I feel once profit growth slows the P/E should be around 35.
Bottom Line
Adobe Systems is clicking on all cylinders right now, and the stock has gotten the valuation it deserves. But the upward slant in the one year and ten year charts makes me cautious on near term expectations. Still, this company is on the cutting edge of development software for the digital world, so I wouldn’t sell out of it entirely. ADBE drops from 6th last qtr to 11th this qtr in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

11 of 35

Aggressive Growth Portfolio

11 of 13

Conservative Stock Portfolio

N/A

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