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An Intrinsic Value Calculation For Adobe Systems Incorporated (ADBE) Shows Investors Are Overpaying

Gavin Beck

Does the share price for Adobe Systems Incorporated (NASDAQ:ADBE) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after December 2017 then I highly recommend you check out the latest calculation for Adobe Systems here.

What’s the value?

I use what is known as the 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I took the analyst consensus forecast of ADBE’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 9.2%. This resulted in a present value of 5-year cash flow of $14,596.9M. Keen to know how I calculated this value? Read our detailed analysis here.

NasdaqGS:ADBE Intrinsic Value Dec 12th 17

In the visual above, we see how how ADBE’s top and bottom lines are expected to move in the future, which should give you some color on ADBE’s outlook. Now we need to determine the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is $47,157.8M.

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is $61,754.7M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $125.28, which, compared to the current share price of $173.57, we find that Adobe Systems is rather overvalued and not available at a discount at this time.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For ADBE, I’ve put together three relevant factors you should further examine:

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.