Adobe to Post Q1 Earnings, Revenue Growth of About 22%; Target Price $563

Adobe, an American multinational computer software company, is expected to deliver higher earnings and revenue for its fiscal first quarter on Tuesday, largely driven by a broader shift to digital marketing due to the COVID-19 pandemic and expectations of a recovery in digital advertisement spending this year.

San Jose, California-based software company is expected to report its first-quarter earnings of $2.79 per share, which represents year-over-year growth of about 23% from $2.27 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of 4.7%.

The software company’s revenue is expected to jump over 22% year-on-year to around $3.76 billion.

According to the ZACKS Research, Adobe forecasts year-over-year revenue growth of 26% from Digital Media. Digital Experience segment revenues are expected to grow 19% on a year-over-year basis, while Digital Experience subscription revenues are likely to increase 22%.

Adobe shares, which surged over 51% in 2020, closed 2.5% higher at $452.41 on Monday.

Analyst Comments

“Improvement in broad advertising spend & healthy channel checks support upside to forecasts as Adobe progresses through FY21. Combined with additional room for margin expansion, durable 20%+ EPS growth makes Adobe a keyway to play a secular growth franchise at a reasonable valuation,” 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 operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 15%+ EBIT CAGR from FY20-FY22 and believe this durable growth is not fully reflected in shares. Our $560 PT is based on 41x CY22e EPS of $13.59, which implies ~2.6x PEG on 16% EPS CAGR from FY20-FY22e.”

Adobe Stock Price Forecast

Nine analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $563.33 with a high forecast of $600.00 and a low forecast of $510.00.

The average price target represents a 24.52% increase from the last price of $452.41. Of those nine analysts, eight rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

“Our Digital Media partner survey showed an improvement vs. last qtr w/ 58% meeting/beating targets, up from 50% last qtr. 2Q pipeline commentary was strong; FY outlooks were unchanged; outlook on Doc Cloud very encouraging. At ~29xEV/CY22E FCF, valuations are near trough levels & we think shares are poised for a bounce off of strong results,” noted J. Derrick Wood, equity analyst at Cowen and Company.

“ADBE shares are down 10% YTD and we think valuations are attractive at 29x EV/CY22E FCF. We continue to see strong upside potential navigating through CY21, aided by an SMB recovery & growing tailwind for Doc Cloud. Reiterate Outperform & $600 price target.”

Morgan Stanley gave the base target price of $560 with a high of $680 under a bull scenario and $426 under the worst-case scenario. The firm gave an “Overweight” rating on the software company’s stock.

Several other analysts have also updated their stock outlook. Adobe had its target price raised by equities research analysts at Goldman Sachs to $523 from $523. The brokerage currently has a “sell” rating on the software company’s stock. Griffin Securities reiterated a “buy” rating and issued a $597 target price. Royal Bank of Canada lifted their price target to $575 from $570 and gave the company an “outperform” rating.

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