Adobe, Inc.(ADBE) is one of the biggest names in the cloud computing and software industry, with a market capitalization of $244.83 billion. The rising demand for cloud computing and digital media services along with the company’s strategic expansion policies allowed ADBE to report record results in its most recent quarter, ended March 5.
Its revenues grew 26% year-over-year to $3.91 billion in its fiscal first quarter, attributable to a 37% rise in its Document Cloud revenue and a 32% rise in its Digital Media revenue. Its non-GAAP EPS improved 38% from the same period last year to $3.14. And shares of ADBE gained 49.9% over the past year, and 9.9% over the past month.
We think ADBE’s share price appreciation is likely to continue in the coming quarters because the company expects its digital media segment revenue and digital experience segment revenue to rise 21% and 18%, respectively, year-over-year.
Here’s what could shape ADBE’s performance in the near term:
The cloud computing industry is likely to grow substantially in 2021 and beyond, thanks to its role in sustaining the remote working model ushered in by COVID-19 lockdown conditions. A new wave of coronavirus infections currently ravaging India, which is deemed a global technology and outsourcing hub, along with rising cases reported in the United States, demonstrates the need for a continuation of work from home structures for the foreseeable future.
The end-user spending on public cloud services is expected to rise 23.1% year-over-year to $332.30 billion in 2021. As a result, the demand for ADBE’s cloud computing and software services is expected to rise in this year.
Impressive Growth History and Profitability
ADBE’s revenues increased at a 21.13% CAGR over the past three years. Its EBITDA and net income rose at CAGRs of 25.11% and 43.63%, respectively, over this period. The company’s levered free cash flow registered a 25.34% growth rate per annum over the past three years, while its EPS improved at a 45.24% CAGR over this period.
ADBE’s 87.45% trailing-12-month gross profit margin is 79.9% higher than the 48.6% industry average. Its return on sales and levered free cash flow margin of 40.68% and 34.25%, respectively, are significantly higher than the 4.53% and 12.37% industry averages.
In addition, ADBE’s trailing-12-month ROE, ROTC and ROA of 46.36%, 17.78% and 22.28%, respectively, compare favorably with industry averages.
Consensus Rating and Price Target Reflect Potential Upside
Of the 21 Wall Street analysts that rated ADBE, 18 rated it Buy and three rated it Hold. The stock has a $564.68 12-month median price target, indicating a 9.5% potential upside. The stock’s price forecast ranges from a low of $500 to a high of $650.
POWR Ratings Reflect Promising Outlook
ADBE has a B overall rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
ADBE has an A grade for Quality, and B for Sentiment. The company’s high profitability justifies the Quality grade. Analysts expect ADBE’s EPS and revenue to rise 14.7% and 17.9%, respectively, year-over-year, in sync with its Sentiment grade.
Click here to view the top-rated stocks in the Software – Application industry.
ADBE’s cloud computing and digital media software services are some of the most widely used products worldwide. As global economic growth remains heavily tech intensive, we expect ADBE to witness steady growth in its financials, given its large market capitalization and international market presence.
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ADBE shares rose $0.55 (+0.11%) in after-hours trading Tuesday. Year-to-date, ADBE has gained 3.44%, versus a 12.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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