It's been a good week for Adobe Inc. (NASDAQ:ADBE) shareholders, because the company has just released its latest second-quarter results, and the shares gained 3.5% to US$407. The result was positive overall - although revenues of US$3.1b were in line with what the analysts predicted, Adobe surprised by delivering a statutory profit of US$2.27 per share, modestly greater than expected. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Adobe after the latest results.
After the latest results, the 27 analysts covering Adobe are now predicting revenues of US$12.7b in 2020. If met, this would reflect a credible 5.7% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to surge 23% to US$9.41. In the lead-up to this report, the analysts had been modelling revenues of US$13.0b and earnings per share (EPS) of US$9.80 in 2020. It's pretty clear that pessimism has reared its head after the latest results, leading to a weaker revenue outlook and a minor downgrade to earnings per share estimates.
What's most unexpected is that the consensus price target rose 18% to US$409, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Adobe analyst has a price target of US$470 per share, while the most pessimistic values it at US$293. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Adobe's revenue growth will slow down substantially, with revenues next year expected to grow 5.7%, compared to a historical growth rate of 21% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 12% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Adobe.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Adobe. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Adobe going out to 2024, and you can see them free on our platform here..
Plus, you should also learn about the 1 warning sign we've spotted with Adobe .
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.