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Adobe (ADBE) Pre-Earnings Insights

After a stellar fiscal third quarter performance and a solid year-to-date rally in its share price, Adobe Inc. (ADBE) is all set to unveil its fiscal fourth quarter results. As the software giant continues to harness the capabilities of AI across its product suite, could it be wise to adopt a bullish outlook on the stock? Keep reading to find out…

Boasting an impressive market cap of $277.74 billion, leading photoshop company Adobe Inc. (ADBE) is set to lift the curtains on its fiscal 2023 fourth-quarter results on December 13.

The company delivered solid third-quarter results with robust growth in both top-line and bottom-line figures, primarily attributed to its AI-based solutions. Notably, ADBE’s digital media segment demonstrated an 11% year-over-year surge, while its digital experience segment exhibited a commendable 10% improvement compared to the same quarter in the prior year.

ADBE’s Chairman and CEO, Shantanu Narayen, highlighted that the company is driving the advent of a new era in global AI-enhanced creativity through inventive upgrades across its product spectrum.

For instance, ADBE introduced Project Stardust on October 11, a robust object-aware editing engine harnessing generative AI to transform image editing. Project Stardust empowers users to effortlessly choose, modify, and even remove intricate elements from any image, enhancing the intuitiveness, accessibility, and time efficiency of image editing for all users.

Furthermore, on October 10, ADBE unveiled over 100 major innovations and updates across Creative Cloud. These enhancements include Adobe Firefly and AI-powered features aimed toward empowering users to bring their creative visions to life quickly and precisely.

Ashley Still, Senior Vice President of Digital Media at ADBE, noted that integrating Firefly and AI into creative workflows has unleashed a new era of creativity across every segment of their business.

Additionally, on September 13, ADBE introduced Adobe GenStudio, a groundbreaking solution that leverages generative AI to transform the enterprise content supply chain. This comprehensive solution marks a significant advancement in content ideation, creation, production, and activation within the enterprise.

Meanwhile, in terms of price performance, ADBE’s shares are on a winning streak, which is evident from its year-to-date surge. ADBE’s shares have soared 81.3% year-to-date to close the last trading session at $610.01

Here are the financial aspects that could affect ADBE’s performance in the near term:

Strong Financials

For the fiscal third quarter that ended on September 1, 2023, ADBE’s total revenue increased 10.3% year-over-year to $4.89 billion, while its gross profit rose 10.9% from the year-ago value to $4.31 billion.

Moreover, the company’s non-GAAP net income and non-GAAP EPS amounted to $1.88 billion and $4.09, up 17.7% and 20.3% from the prior-year quarter, respectively. In addition, its non-GAAP operating income improved 15.8% year-over-year to $2.26 billion.

Upbeat Analyst Forecasts

The consensus EPS estimate of $4.14 for the fiscal fourth quarter (ended November 2023) represents a 14.9% increase year-over-year. While the consensus revenue estimate of $5.02 billion for the same quarter reflects a 10.9% year-over-year improvement.

Solid Historical Growth

Over the past three years, ADBE’s revenue and EBIT have grown at CAGRs of 14.9% and 17.1%, respectively. In addition, the company’s net income, EPS, and levered FCF have improved at CAGRs of 9.9%,11.9%, and 22.3% during the same period, respectively.

Robust Profitability

The stock’s trailing-12-month net income margin of 27.12% is significantly higher than the 2.35% industry average. Its trailing-12-month EBIT margin of 33.95% is 611.4% higher than the industry average of 4.77%. Furthermore, ADBE’s trailing-12-month cash per share of $14.48 is 655.1% higher than the $1.92 industry average.

POWR Ratings Exhibit Solid Prospects

ADBE’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADBE has an A grade for Quality justified by its higher-than-industry profitability. Moreover, the stock has a B grade for Sentiment, in sync with the positive analyst estimates for its to-be-reported quarter.

Within the Software - Application industry, ADBE is ranked #27 out of the 132 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of ADBE here.

Bottom Line

With a strategic focus on AI-enhanced creativity, ADBE is going above and beyond to capitalize on the prevailing AI frenzy, evident from its recent innovations such as Project Stardust, Firefly, Creative Cloud, and GenStudio.

Additionally, ADBE's impressive financials, consistent historical growth, optimistic analyst estimates for the upcoming quarter, and robust profitability positions it as an ideal investment choice.

How Does Adobe Inc. (ADBE) Stack Up Against Its Peers? 

While ADBE has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Software - Application industry: eGain Corporation (EGAN), TeamViewer SE (TMVWY), and Commvault Systems, Inc. (CVLT), with an A (Strong Buy) rating. For exploring more Software - Application stocks, click here.  

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ADBE shares were trading at $622.71 per share on Monday morning, up $12.70 (+2.08%). Year-to-date, ADBE has gained 85.04%, versus a 21.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.


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