Adobe Stock Forecast: Tech Giant Beats Expectation Boosting Price 28%

motek 1This Adobe stock forecast article was written by Nicole Shammay – Analyst at I Know First.

Highlights:

  • Adobe’s Q2 results beat estimates up 23% from the year-ago quarter
  • Hedge funds piled into Adobe’s stock and experienced a return of 13.9% 
  • DCF support around $735, a 28% upside for the Adobe stock forecast on a one-year horizon

Overview:

Adobe Inc. (Nasdaq: ADBE) is an American multinational computer software company that takes part in the provision of digital marketing and media solutions. Founded in 1982, Adobe has specialized in various content creations such as graphics, photography, illustration, animation, multimedia/video, motion pictures, and print. As one of the largest and most diversified software companies globally, they also provide cross-channel campaign management, premium video delivery, and monetization. Adobe Inc. is also mainly known for its services in eLearning software, audio editing, web application development, and high-end printing. They enable students, artists, small businesses, government agencies, and global brands to personalize transformative digital experiences. 

Digital Wizard Reveals Outstanding Q2 Earnings, Surprising Investors, and Estimates

On June 17, 2021, Adobe reported on their second-quarter results ending on June 4, which stunned investors. Some of the most favored highlights include revenue achievement of $3.84 billion. This represented a 23% growth year-over-year. In addition, their Digital Media Segment, creative revenue, and Document Cloud revenue all grew 25%, 24%, and 30%, respectively. Furthermore, cash flows from operations recorded at $1.99 billion and repurchased approximately 2.1 million shares during the quarter. ADBE also earned an adjusted EPS of $3.03 a share on sales of $3.84 billion for a 52.11% increase year-over-year as shown in the chart below. Also, according to Yahoo Finance, Adobe Inc. has beaten the market expectation four times in a row. Thus, ensuring confident growth for the Adobe stock forecast in the coming year.

ADBE clearly continues to transform the way we work, learn, and execute imaginative ideas in a digital-first world. Impressive growth in their Creative Cloud segment was likely due to their strong Digital Media Annualized Recurring Revenues (ARR). They have also implemented new subscriptions, embraced new enterprise services which value education. With the ever-growing pressure for data, analytics, insight, personal expression, and more, ADBE has created segments for targeted customers. Their strategy for unleashing creativity has clearly been successful as ADBE has single-handedly accelerated document productivity and powered businesses. Giving people real competitive advantages has modified several opportunities and proved their innovative tactics.

Furthermore, it should be noted that ADBE divides their revenue into three types according to the 2021 10-Q report: subscription, product, and services and other. With subscriptions maintaining the highest percent of revenue at 92% for the 2021 year, it is also divided into three more reportable segments. Adobe’s subscription includes digital media, digital experience, and publishing and advertising. Due to increases in both their digital media and digital experience revenue, ADBE is successfully projecting itself into various geographic regions. For the quarter ending May 31, ADBE recorded a 22.6% increase in revenue year-over-year. Lastly, with ADBE’s new 2021 Sensei AI Power Photoshop, they are unleashing a whole brand of applications for creative minds.

Unbeatable Financial Health

It is crucial to take a look at how Adobe Inc. presents itself compared to its high-achieving competitors. For example, Adobe’s operating margin is 36% better than 97% of companies in the Software industry. This is important because it proves that ADBE is healthy: they can pay for any fixed costs, debt, or taxes. A strong operating margin is a confident indicator that the company is less of a risk compared to its competitors. Furthermore, ADBE’s net margin is 39% better than 97% of companies in the Software industry. Ensuring effective control over its costs as well as efficient management demonstrates. Just from these two financial coefficients alone, investors should understand the sturdy financial health of the company.

ADBE Stock Forecast market cap chart
Source: Guru Focus

With the highest market capitalization compared to its competitors according to Guru Focus, ADBE is an easy buy as it is clearly valued highly on the open market as well as the perception of future prospects. Clearly, investors are willing to pay well for the stock. Lastly, with a P/E ratio of approximately 50%, growth expectations in the future are solidified and expectations indicate growth of the company compared to the overall market.

Strong Hedge Fund Sentiment Score Set As 90.4

Hedge funds are known for creating strong, risk-adjusted returns over the long run. They provide strategies for retail investors by imitating picks. With the current round of 13F filings recently ended, there has been extreme sentiment towards Adobe Inc. Markt sentiment provides a numerical attitude of investors towards a particular financial market. The stock ranked 16th amongst the 30 most popular stocks for hedge funds according to Insider Monkey

Fisher Asset Management also has the number one position in ADBE worth close to $2.8511 billion. And, the powerful overall hedge fund sentiment score for ADBE is 90.4. This is particularly notable because stocks with a higher number of hedge fund positions relative to other stocks have received a higher score. 

DCF Estimates $735 Adobe Stock Forecast

The DCF analysis shows that ADBE’s target stock price should be around $735 in the coming year. This expected share price makes a 28% upside from the price on June 24th. The below forecast is based on average data from previous years.

DCF model

I have made the next assumptions and estimations for this DCF: 

  • The interest rate will increase by 3% on an annual basis
  • The effective tax rate to be 10%
  • The risk-free rate and the risk premium to be equal to 1.75% and 5.89% respectively

Conclusion

I take a strong buy-side on the ADBE stock because the stock holds a positive DCF forecast resulting in a $734.72 target price. This represents a potential 28% upside. The company has made highly promising growth, particularly in terms of its revenue, which accelerates future business expansion.

Finally, my bullish prediction for the ADBE stock is certainly supported by the algorithmic forecast shown above by I Know First. With a high one-year trend signal of 340.95, the forecast represents a secure trigger to buy as well as a positive increase in the stock price on a one-year horizon.

Past Success With Adobe Stock Forecast

I Know First has been forward-looking with its Adobe forecast in the past. On June 12, 2020, the I Know First algorithm issued a bullish forecast for ADBE stock price at 479.93 with a 0.73 probability rating, which ensured high confidence. As a result, the stock surged by some 40% even during the harshest COVID-19 times.

adobe stock forecast

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Please note-for trading decisions use the most recent forecast.