Adobe Systems Inc. (NASDAQ:ADBE) is expected to issue its financial results for the second quarter of fiscal 2018 on Thursday, June 14, after market close.
For the quarter, a total of 26 analysts have estimated that Adobe’s earnings will range between a low of $1.50 per share and a high of $1.60 per share. The average of this range is $1.54, which is 51% higher than the prior-year quarter.
Instead, Adobe Systems is targeting a non-GAAP measure of earnings per share of $1.53 and a GAAP-measure of earnings of $1.16 per share.
Concerning the revenue, the average analyst is estimating that the U.S. global computer software company has invoiced customers for $2.16 billion during the second trimester of 2018, which ended May 31. That is a mean of 23 forecasts that range between a low of $2.15 billion and a high of $2.19 billion. A year ago, Adobe Systems reported a revenue of $1.77 billion. This means that forecasts for the second quarter of 2018 represent on average 21.6% increase year over year.
Adobe Systems targets a second quarter total revenue of $2.15 billion and a 25% year over year growth in revenue from the digital media segment. Revenue from the digital experience segment is expected to come in at a 15% growth. The rate is computed on a year over year basis.
The company also anticipates a net new Digital Media annualized recurring revenue of approximately $330 million.
If data on second quarter sales and earnings will prove the company is on target with its estimates, the trailing 12-months net operating margin will increase 1.4 percentage points to 25.8% from a previous rate of 24.4%.
GuruFocus rates Adobe Systems’ ability to be profitable and stay that way. It rates the company a 9 out of a total of 10 in profitability and growth. Regarding the future profitability of the Adobe Systems, analysts project 13.2% growth in earnings from full fiscal 2018 to full fiscal 2019 and an average 26.1% annual growth for the next five years. Revenues are projected to grow 17.7% to $10.4 billion in full fiscal 2019 from $8.85 billion in full fiscal 2018. Analysts estimate that total revenues will come in at $11.967 billion in full fiscal 2020. That is a 14.8% upside from the previous fiscal year.
The balance sheet of Adobe System Inc. is solid with $6.15 billion in cash on hand and securities or $12.48 per share. The total debt amounts to $1.88 billion and the equity is worth about $8.63 billion. The most recent quarter total debt-to-equity ratio is 21.8% versus an industry median of approximately 27%. This means that the balance sheet of the American international software company is less leveraged than its peers. An interest coverage ratio of 31.53 indicates that Adobe Systems doesn’t encounter any problem in paying the interest expense on the outstanding debt. A current ratio of 2.12 indicates that the company is more than capable of meeting its short-term obligations with cash that can be generated within the period of 12 months. The industry has a median of 1.9. As a result, Adobe Systems is better positioned financially than most of its direct peers.
GuruFocus has assigned Adobe Systems a financial strength rating of 8 out of 10.
From the last quarter of fiscal 2017 to the first quarter of fiscal 2018, the total amount of cash on hand increased by nearly 16%, thanks to a business that generates inflows of $3.15 billion to $3.20 billion annually. The company is not distributing dividends to its shareholders and this means that about 75% of the yearly operating cash flow is invested for business growth purposes. About 25% of that is employed for the satisfaction of the company’s lenders.
The stock has a market capitalization of $124.39 billion. The price-book ratio is 14.43 times versus an industry average of 3.25 times, the price-sales ratio is 16.42 times versus an industry average of 2.57 times and the price-earnings ratio is 67.18. The industry has an average price earnings ratio of 27.61 times.
The Peter Lynch chart powered by GuruFocus demonstrates that the share price of Adobe Systems, which stands at $259.59 per share, is far above the Peter Lynch Earnings line (P/E = 15) of $56.4 per share and the Price at Med P/E without NRI (P/E = 31.32) of $117.80 per share. That is an indication that the stock is not cheap at the moment.
Also, when we have a look at the price that the stock is supposed to hit within 52 weeks of trading, it suggests that it is lower than the current market value. However, as of June 12, there are 25 analysts out of a total of 31, representing more than 30% of Wall Street, who believe that Adobe Systems is a Buy. Six analysts recommend a Hold on the stock, however.
I would suggest holding the stock and waiting for a significant weakness, which can bring the share price back to a value no higher than $233 to $235 per share. Then, I would buy shares of Adobe Systems. The company's stock has climbed 42% so far this year and 82% in the last year.
According to GuruFocus, Adobe Systems has 492.47 million shares outstanding. The stake held by institutions is 81.06% while insiders hold 0.36%.
As of March 31, FMR, LLC holds 7.71% of Adobe’s total shares outstanding, PRIMECAP Management (Trades, Portfolio) holds 4.41% and State Street Corp. owns 3.68%.
(Disclosure: I have no positions in any stock mentioned in this article.)
