Adobe on Track to Beat Q4 Earnings After Noisy Q3 Results

The U.S. multinational computer software company, Adobe, is expected to report its fiscal fourth-quarter earnings of $3.20 per share, which represents year-over-year growth of about 14% from $2.81 per share seen in the same period a year ago.

The San Jose, California-based software company would post year-over-year revenue growth of over 19% to $4.09 billion. In the last two years, the company has beaten earnings per share (EPS) estimates almost all the time.

Better-than-expected results, which will be announced on Thursday, Dec 16, would help the stock recoup recent losses. Adobe stock slumped 5.35% to $623.08 in pre-market trading on Tuesday. However, it surged over 25% so far this year.

Analyst Comments

“We expect a small FQ4 beat and a conservative FY22 guide that is reassuring enough and can be walked up over time. Current FY22 consensus ests look reasonable, even taking into account tougher comps from a strong FY21 that also included an extra week (53-week FY). Adobe (ADBE) remains a favourite, high-quality, large-cap name,” noted Brent Thill, equity analyst at Jefferies.

“With ADBE up 27% YTD vs S&P500 +24% and NASDAQ COMP.+20%, there is a slight positive bias to expectations, even with a ~10% pullback from its recent (11/22) peak of ~$700. We expect a small beat in FQ4, despite noisy Q3 results from software & internet peers, as ADBE’s guidance likely embedded some conservatism when it was set in late Sept after pronounced summer seasonality in FQ3 and as it should benefit from seasonal FQ4 strength and tailwinds from the MAX conference.”

Adobe Stock Price Forecast

Twenty-two analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $725.95 with a high forecast of $820.00 and a low forecast of $670.00.

The average price target represents a 10.28% change from the last price of $658.30. Of those 22 analysts, 17 rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $736 with a high of $954 under a bull scenario and $552 under the worst-case scenario. The firm gave an “Overweight” rating on the computer software company’s stock.

“Heading into FY22 we favour core franchises at reasonable valuation levels, like Adobe. We see improving DX growth, more so than DM, to pave the route to sustained ~20% growth. The initial FY22 guide likely proves conservative, but establishes a base from which ADBE can grind higher,” noted Keith Weiss, equity analyst at Morgan Stanley.

“Adobe has leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media, and marketing automation. As such, we see the longer-term growth story for ADBE as better than most. With a large recurring rev base and best-in-class operating margin, we expect ~18% EBIT CAGR from FY21-FY23 and believe this durable growth is not fully reflected in shares. Our $736 PT is based on 42x FY23e EPS of $17.33, which implies ~2.4x PEG on ~18% EPS CAGR from FY21-FY23e.”

Several other analysts have also updated their stock outlook. Credit Suisse initiated with a “Neutral” rating and set the target price of $700. Deutsche bank started with a “Buy” rating and set the target price of $770. BofA Global Research raised the price objective to $720 from $640.

Technical analysis suggests it is good to buy as 150-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

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