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Adobe Systems Profits Soared 44% in 2017

Stock (Symbol)

Adobe Systems (ADBE)

Stock Price

$189

Sector
Technology
Data is as of
January 11, 2018
Expected to Report
Mar 15
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 was a big winner in 2017, I see momentum continuing on into 2018. ADBE fits the mold of a top-tier growth stock with (1) rapid profit growth (2) increasing profit estimates and (3) beating the street when profits are announced. And it’s in the perfect economy to grow its business as digital video will be the #1 thing people do with their spare time. Adobe’s software is used by the movie makers and digital marketers to make and market images and videos, but it’s also used for marketing. Adobe has the following divisions: 

  • Digital Media is the largest division at 2/3rds of sales and includes Adobe Creative Cloud is the gold standard for creativity and design, and is used by tens of millions of people. Adobe Document Cloud provides a modern way to manage paper-to-digital document storage.
  • 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.

Adobe is a juggernaut, with $2 billion in sales each qtr. Management bought back $1.1 billion in stock in fiscal 2017. Profits have grown 40% or greater in ten of the last 12 qtrs. And with a P/E of 34 the stock is reasonable, with good upside in the coming year. Adobe’s software is making the Internet work, and investors should put the stock to work as well.

One Year Chart
Last qtr ADBE delivered 40% profit growth, which beat views of 29%, as sales increased 25%. After the earnings call, 2018 estimates increased from $5.47 to $5.57 and 2019 estimates grew from $6.60 to $6.78. That’s the fourth consecutive qtr estimates have increased. Also, Estimates for the next 4 qtrs look very good with 35%, 30%, 28% and 22%ADBE has beaten the street every qtr in the last three years and I feel that trend will continue.
Fair Value
It’s amazing to me ADBE just made $1.25 in a qtr when earlier in the decade it was making around $1 to $2 in a year. Not only do I feel this stock is worth 40x earnings, but I think estimates will continue to rise, thus in the end my 2018 Fair Value of $223 might be going up in future qtrs.
Bottom Line
Adobe Systems is the key to images, videos and even marketing on the Internet. But a word of caution: this stock looks extended on the ten-year view. Although I feel profits will continue to grow at a strong rate, I can envision the stock diving lower if the stock market has a long overdue correction. But the trend is your friend, so we shouldn’t fight the tape. ADBE ranks 6th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

6 of 39

Aggressive Growth Portfolio

6 of 16

Conservative Stock Portfolio

N/A

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