Adobe Shares Hit New Record High After Earnings Beat Estimates; Analysts Raise Target Price

Adobe shares scaled its fresh all-time high on Friday after the U.S. multinational computer software company reported better-than-expected earnings and revenue in the fiscal second quarter, prompting several analysts to raise their one-year price targets.

The San Jose, California-based software company reported quarterly revenue of $3.84 billion in its second quarter of the fiscal year 2021, which represents 23% year-over-year growth. That was higher than the Wall Street consensus estimates of $3.73 billion.

Adobe posted diluted earnings per share was $2.32 on a GAAP basis and $3.03 on a non-GAAP basis, beating the market expectations of $2.81 per share.

Adobe, one of the largest software companies, reported digital media segment revenue was $2.79 billion, which represents 25% year-over-year growth. Creative revenue grew to $2.32 billion, representing 24% year-over-year growth. Document Cloud revenue was $469 million, representing 30% year-over-year growth.

Adobe shares rose over 3% to a record high of $570 on Friday. The stock surged over 10% so far this year.

Analyst Comments

“Adobe (ADBE) delivered a strong qtr w/ net new ARR growth of 17% handily beating our 3% est. DX growth of 21% beat our 18% est, aided by its largest deal ever and now marking two qtrs of outsized upside. And op margins were ~250bps above our est. All in, a very clean qtr and w/strong 3Q guide & commentary on confidence for a 4Q seasonal flush, it suggests demand trends are back in full swing. PT to $650,” noted J. Derrick Wood, equity analyst at Cowen.

“We think valuations remain attractive, particularly given growth momentum seems to be elevating. We increased our FY21 growth forecast from 20% to 22%. And we raised FY22E FCF/sh from $16.07 to $16.49.”

Adobe Stock Price Forecast

Twenty-one analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $616.16 with a high forecast of $665.00 and a low forecast of $520.00.

The average price target represents 11.75% from the last price of $551.36. Of those 21 analysts, 18 rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley raised the stock price forecast to $610 from $575 with a high of $770 under a bull scenario and $464 under the worst-case scenario. The firm gave an “Overweight” rating on the software company’s stock.

“Digital Media net new ARR additions beating consensus by 15% and accelerating to 17% YoY growth show building momentum in Adobe’s core earnings engine. With operating margins 200 bps ahead of consensus driving 24% YoY EPS growth, positive revisions should drive Adobe (ADBE) towards our increased $610 PT,” noted Keith Weiss, equity analyst at Morgan Stanley.

“Adobe has a 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 operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 25% EBIT CAGR from FY20-FY22 and believe this durable growth is not fully reflected in shares. Our $610 price target is based on 42x CY22e EPS of $14.56, which implies 2.1x PEG on 20% EPS CAGR from FY20-FY22e.”

Several other analysts have also updated their stock outlook on Friday. Evercore ISI raised the stock price forecast to $625 from $550. Bernstein lifted the target price to $638 from $577. Stifel increased the price objective to $600 from $550. Goldman Sachs upped the target price to $665 from $580. Cowen and company lifted the price target to $650 from $600.

BMO raised the target price to $630 from $585. Mizuho increased the target price to $640 from $600. Citigroup upped the price target to $575 from $523. Oppenheimer lifted the stock price target to $600 from $550. RBC increased the target price to $650 from $575. Jefferies raised the target price to $660 from $630.

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