Adobe ADBE shares have surged 36% in 2019 to outpace its broader market’s 24% climb. The recent run of success is part of a much larger and more impressive stretch for the creative software powerhouse. So, is now the time to buy Adobe with the company set to report its Q4 fiscal 2019 financial results on Thursday, December 12?
Adobe isn’t on the same level as Microsoft MSFT or Apple AAPL. But the firm is still a technology powerhouse that invented the Portable Document Format, better known as the PDF, in the early 1990s. Today, ABDE sells a variety of offerings, from its suite of creative software such as Photoshop to cloud-based subscription solutions for businesses that help it compete alongside the likes of Salesforce CRM and other business services companies.
The San Jose, California-based firm’s Adobe Spark has capitalized on the rapid rise of digital media. The offering allows users to create web pages, graphics, and short videos “in minutes.” Last quarter, Adobe posted record quarterly revenue, up 24% from Q3 2018. More specifically, ADBE’s digital media segment jumped 22%, while its smaller digital experience segment sales surged 34%.
More recently, Adobe executives on November 4 upped their guidance for fiscal 2020. The company pointed to strength in the “creative, digital documents and customer experience management categories,” where it boasts numerous cloud solutions. “Our strategy to unleash creativity, accelerate document productivity and power digital businesses is driving our growth and represents a $128 billion opportunity in 2022,” CEO Shantanu Narayen said in prepared remarks.
“Our expanding universe of customers, strong global brand, market-leading products and continued innovation position us for a stellar 2020.”
ADBE holds a market cap of $149 billion and sports a “B” grade for Growth in our Style Scores system. The company is also part of our Computer – Software industry that currently rests in the top 25% of our more than 250 Zacks industries.
Adobe doesn’t currently pay a dividend but it does return value to shareholders through buybacks, which included repurchasing approximately 2.6 million shares during the third quarter.
ADBE stock is currently trading at 37.8X forward 12-month Zacks earnings estimates, which marks a premium compared to its industry’s 28.9X average. With that said, the chart shows us that investors have been willing to pay up for Adobe stock for the last five years, and that ABDE is trading just below its five-year median.
Q4 Outlook & Beyond
Our Zacks estimates call for Adobe’s fourth-quarter fiscal 2019 sales to jump 20.5% from the prior-year quarter to hit $2.97 billion. This would mark the slowest expansion for Adobe this year, after it jumped 24% last quarter and 25% in both Q2 and Q1.
The tech company’s full-year fiscal 2019 sales are projected to jump 23.5% from $9.03 billion to hit $11.15 billion. Peeking further down the road, Adobe’s fiscal 2020 revenue is expected to jump another 17.5% higher to $13.10 billion.
This year’s estimate compares favorably with 2018’s 24% growth, 2017’s 25% expansion, and 2016’s 22%. Plus, 2020’s projection would see Adobe expand its revenue by more than it did in 2015 through 2011.
At the bottom end of the income statement, Adobe’s adjusted Q4 earnings are projected to jump 23.5% to $2.26 per share, with fiscal 2019 expected to pop 16%. ADBE’s full-year fiscal 2020 EPS figure is then projected to jump 25% higher.
Adobe has also seen its full-year fiscal 2020 earnings revisions trend heavily upward recently and it has consistently outperformed our bottom-line estimates in the last several years.
Adobe is a Zacks Rank #3 (Hold), with the company set to report its Q4 results after the closing bell on Thursday, December 12, alongside fellow tech firms Oracle ORCL and Broadcom AVGO.
ADBE stock hasn’t traded that heavily around earnings in recent periods, which might make it a bit less risky to think about buying Adobe shares ahead of its earnings release on the hope that it can impress Wall Street. However, investors should likely just keep an eye on Adobe’s actual results and updated guidance before they make any moves, especially with ABDE right near its highs.
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