Adobe Systems (ADBE) reported first-quarter 2017 earnings yesterday (November year-end), after the market closed. The company outperformed analysts’ estimates by a good margin, and also increased second-quarter expectations. The market is thrilled, and the stock is up about 5% this morning.
Almost every analyst who covers the stock will write an updated and bullish research report in the coming week, which will invariably push the share price higher, as their readers buy the stock. Hold your shares!
Adobe reported earnings per share (EPS) of $3.01 in 2016. Consensus EPS estimates, which barely changed in recent months, projected $3.81 and $4.79 EPS in 2017 and 2018. We can conservatively expect those to increase to at least $3.92 and $4.99, reflecting EPS growth of 30.2% and 27.3%. The corresponding price/earnings ratios (P/Es) are 32.8 and 25.8, based on a current share price of $128.77. The stock is slightly undervalued, based on 2018 EPS and P/E.
I had previously rated ADBE Hold due to fair valuation, but kept the stock because the chart appeared quite bullish. Sure enough, the stock began a new run-up today. In addition, technology stocks commonly command high P/Es, so there wasn’t anything worrisome happening with the P/E.
I’m going to maintain the Hold rating. Remember, Hold does not mean Sell! If I give a stock a Hold rating, it means I believe investors can make more money in the stock in the near future. I will continue to monitor the earnings outlook and the price action closely with an eye toward selling if either of those situations becomes concerning. Hold.
Don’t miss my column today’s in Wall Street’s Best Daily—a free Cabot publication—in which I recommend Ameriprise Financial (AMP): “Buy This Mid-Cap Stock As Investor Interest Returns”. If you buy the stock, and want an occasional update on its outlook or price chart, just send me an email at Crista@CabotWealth.com. Don’t be shy! Lots of subscribers send me emails; it’s no bother.
From my ancestors to you: Happy St. Patrick’s Day!