Apps & Software

Adobe Earnings Preview: Can It Beat Low Expectations?

The three major U.S. equity indexes tanked Tuesday. The Dow Jones industrials ended the day down 3.94%, the S&P 500 fell by 4.32% and the Nasdaq plunged 5.16%. All 11 sectors ended the day with losses, ranging from 5.5% (communications services) to 2.5% (energy). The tech and consumer cyclical sectors also had big losses of 5.3% and 5.2%, respectively.

The monthly report on the producer price index (PPI) released Wednesday morning showed it dropped by 0.1% month over month in August and fell from 9.8% in July to 8.7% last month. The Dow and the S&P 500 traded marginally higher early Wednesday while the Nasdaq lagged.

Before Wednesday’s open, Li-Cycle reported a big miss on expected revenue and a bigger-than-expected per-share loss. The shares traded down up about 0.2%.

Software maker Adobe Inc. (NASDAQ: ADBE) reports quarterly earnings after markets close Thursday. The company has seen its share price decline by 13.2% over the past 12 months. Half that decline came from a drop of 7.1% during Tuesday’s bloodbath. Since posting an all-time high in late November, the shares have plunged by 45.3%. The company reset expectations lower when it reported results for the most recent quarter, but a recent analyst’s downgrade could point to lower guidance for the current quarter.

Of 31 analysts covering the stock, 23 have a Buy or Strong Buy rating and the other eight rate the shares at Hold. At a recent price of around $368.40 a share, the upside potential based on a median price target of $469.50 is 27.4%. At the high target of $549.00, the upside potential is 49%.

Fiscal third-quarter revenue is forecast at $4.44 billion, which would be up 1.2% sequentially and 12.7% higher year over year. Adjusted earnings per share (EPS) are forecast at $3.35, flat sequentially and up 7.7% year over year. For the full 2022 fiscal year ending in November, analysts forecast EPS of $13.54, up 8.5%, on sales of $17.68 billion, up 12%.

Adobe stock trades at 27.2 times expected 2022 EPS, 23.2 times estimated 2023 earnings of $15.90 and 19.7 times estimated 2024 earnings of $18.73 per share. The stock’s 52-week trading range is $338.00 to $699.54. Adobe does not pay a dividend. Total shareholder return for the past year was negative 42.9%.

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