ADBE with Nobias technology: Is Adobe A Buy After Its Post-Third Quarter Earnings Dip?
Adobe reported its third quarter earnings this week. The stock beat analyst estimates on both the top and bottom lines; however, ADBE shares sold off on the results. Adobe shares were down 4.85% this week because of their post-earnings report weakness. Yet, even after this nearly 5% sell-off, ADBE’s year-to-date results are still very attractive, with shares up 24.51% (beating the S&P 500’s 18.7% year-to-date gains). And, with that in mind, we wanted to see what the highly rated analysts that the Nobias algorithm tracks have had to say about the stock to see whether or not this is a dip that long-term investors should consider buying.
Coming into the quarter, it appears as though ADBE shares were priced to perfection. This shouldn’t come as a surprise to investors because of the amazing operational performance that Adobe has generated in the recent past. Royston Yang, a Nobias 5-star rated analyst, recently published an article at The Motley Fool, which highlighted 3 companies which he believes could help investors “retire a millionaire”.
Yang touched upon the recipe for success as a long-term investor thinking about a comfortable retirement saying, “The key to being successful in this endeavor is to select great companies to own for the long term. As these businesses report higher revenue, profit, and cash flow, their share prices should rise in tandem. Patience and consistent allocation of capital to such winners can slowly but surely help you build up that coveted nest egg.” In his opinion, Adobe meets these qualifications. Yang wrote, “Adobe is thriving in a world where the pandemic has accelerated digital usage. The company's suite of cloud computing services, such as Document Cloud and Creative Cloud, aids business efficiency and has benefited from the stay-at-home trend. Adobe's subscription-based model has served it well over the years, helping the company to more than double its revenue from $5.9 billion to $12.9 billion from 2016 to 2020. Over the same period, net income has more than quadrupled, from $1.2 billion to $5.3 billion.” He continued, saying that the company’s strong growth has not slowed down, despite its tough year-over-year comparisons, this year either.
Yang stated, “This impressive growth has continued unabated this year, as Adobe has reported year-over-year increases of 24.5% and 15.7% in revenue and net income, respectively, for the first half of 2021.” In conclusion, Yang noted big contracts that Adobe has signed with large-cap clients such as Microsoft (MSFT), Nike (NKE), and PayPal (PYPL), which, in his belief, are likely to help the company continue its growth in the cloud space.
Nobias 5-star rated analyst, Richard Saintvilus, posted an article titled, “Adobe (ADBE) Q3 Earnings: What to Expect” on Nasdaq.com prior to the earnings release and also highlighted this priced to perfection notion, saying, “Adobe shares have surged beyond the Street’s 12-month consensus price target. This is even as analysts’ consensus price targets have risen over the past six months.”
With regard to why ADBE shares have been rallying so well in recent months, Saintvilus said, “The company is benefiting from rising profit margins during its transition to a cloud-based subscription services business within both its Digital Media and Digital Experience segments.” He broke down Wall Street’s expectations for the company’s Q3 results saying, “For the quarter that ended August, Wall Street expect the San Jose, Calif,-based company to earn $3.01 per share on revenue of $3.89 billion. This compares to the year-ago quarter when earnings came to $2.57 per share on revenue of $3.23 billion. For the full year, ending October, earnings are expected to rise 21% year over year to $12.24 per share, while full-year revenue of $15.68 billion would climb 21.8% year over year.”
Even though these estimates were calling for 20%+ growth, the company managed to out-do the analyst expectations. Adobe reported sales of $3.94 billion during the quarter, which represented 22% year-over-year growth and came in $40 million above the analyst consensus estimate. Adobe’s non-GAAP earnings-per-share came in at $3.11 during the third quarter, beating the analyst consensus estimate by $0.09/share.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Adobe’s CEO, Shantanu Narayen, began the company’s Q3 earnings report by saying: “Adobe had another outstanding quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform storytelling, learning and conducting business in a digital-first world. Our talented employees, category-defining innovation and product leadership uniquely position us for continued momentum and success.”
ADBE’s management remained bullish throughout the earnings report and earnings conference call, with the company’s CFO, John Murphy, concluding his piece of the conference call by saying, “Given Adobe's year-to-date performance and our Q4, we are clearly on track to exceed our updated annual targets for fiscal 2021 provided in March. With the massive opportunities across creativity, digital documents, and customer experience management, we continue to invest and drive strong business results.”
As it turns out, Adobe’s management team members aren’t the only ones who’re bullish on ADBE shares. 94% of the credible authors that the Nobias algorithm tracks have a “Bullish” outlook on shares. What’s more, the average analyst price target amongst the credible analysts that the Nobias algorithm tracks is $724.80, which represents upside potential of approximately 26%, relative to ADBE’s current share price of $577.47.
Adobe shares are down roughly 7.5% from their current 52-week high of $673.88. With the collective opinion of the highly credible (4 and 5-star rated) Nobias analysts in mind, it appears that this is a dip that investors should consider buying.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long MSFT, NKE, and PYPL. . Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.